Document Type
Working Paper
Date of this Version
8-1-2012
Abstract
Financial advice tends to focus on financial assets, but other levers may be more important for most households. This chapter proceeds in three stages. First we report a simple Excel spreadsheet exercise that provides a stylized example of the tradeoff between returns and time spent in the labor force. Next we use data from the Health and Retirement Study (HRS) on pre-retirees age 51-64 to see how the gap between retirement needs and retirement resources is affected by working longer, taking out a reverse mortgage, controlling spending, and shifting all assets to equities with no risk. Last we use a simple dynamic programming model to calculate a risk-adjusted measure of the value for the average household of moving from a typical conservative portfolio to an optimal portfolio. Our answer from all three exercises suggests that the focus on asset allocation is misplaced.
Working Paper Number
WP2012-09
Copyright/Permission Statement
All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2012 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.
Date Posted: 28 June 2019
Comments
The published version of this Working Paper may be found in the 2013 publication: The Market for Retirement Financial Advice.