Optimal Life Cycle Portfolio Choice with Changing Family Status and the Demand for Life-Contingent Assets

Abstract: 

This project will analyze how changing family status over the life cycle influences optimal portfolio choice, for stocks, bonds, life contingent-assets (life annuities and term life insurance). Prior models have not focused in much detail on the way in which changes in marital status and numbers of children might influence such investors behaviors. Nevertheless, in the presence of differential labor income profiles for men and women, there is expected to be an increased demand for term life insurance, joint survivor or single life annuities, since labor income cannot be adjusted easily in case of a spousal death. In addition, children affect parental decisions by requiring consumption as well as time inputs. In the case of a divorce, assets (including pension claims) must be split by the partners. We will analyze the effect of changing family status over the life cycle on optimal retirement accumulations and decumulations behavior taking into the account current and prospective future US Social Security and taxes.

Funded By: 
Boettner
Award Dates: 
July 1, 2013 - June 30, 2014
PARC Grant Year: 
Year 20