How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios

TitleHow Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios
Publication TypeJournal Article
Year of Publication2016
AuthorsHubener A., Maurer R., Mitchell O.S
JournalReview of Financial Studies
Volume29
Issue4
Pagination937-978
Date PublishedApr
ISBN Number0893-9454
Accession NumberWOS:000374225300003
Abstract

We show how optimal household decisions regarding work, retirement, saving, portfolio allocations, and life insurance are shaped by the complex financial options embedded in U.S. Social Security rules and uncertain family transitions. Our life cycle model predicts sharp consumption drops on retirement, an age-62 peak in claiming rates, and earlier claiming by wives versus husbands and single women. Moreover, life insurance is mainly purchased on men's lives. Our model, which takes Social Security rules seriously, generates wealth and retirement outcomes that are more consistent with the data, in contrast to earlier and less realistic models.

DOI10.1093/rfs/hhv070