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Portfolio allocation over the life cycle with multiple late-in-life saving motives

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  • Lee, Minjoon

Abstract

Older households face health-related risks, including risks related to long-term care and mortality. The effect of these risks on household financial portfolio choices depends on household preferences for long-term care and bequests. Using linked survey-administrative data on clients of a mutual fund company, this paper finds that the desire to have enough resources for long-term care and bequests is overall strong but also heterogeneous across households. The estimated relationship between the actual stock share of households and the strength of these preferences is qualitatively similar but quantitatively weaker compared to predictions from the life-cycle model with estimated preference heterogeneity. Based on the predictions from the model, this paper discusses directions to improve financial advice and instruments to better meet household needs.

Suggested Citation

  • Lee, Minjoon, 2023. "Portfolio allocation over the life cycle with multiple late-in-life saving motives," Journal of Empirical Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:empfin:v:74:y:2023:i:c:s0927539823000865
    DOI: 10.1016/j.jempfin.2023.101421
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    More about this item

    Keywords

    Portfolio choice; Long-term care; Bequest motive;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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