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

Andreas Hubener¹; Raimond Maurer¹; Olivia S. Mitchell²

¹ Goethe University Frankfurt · ² University of Pennsylvania

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.

DOI

10.1093/rfs/hhv070

Volume

29 (4)

Pages

937-978

Language

en

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