How Household Portfolios Evolve after Retirement: The Effect of Aging and Health Shocks

36 Pages Posted: 3 Aug 2006 Last revised: 2 Jan 2023

See all articles by Courtney Coile

Courtney Coile

Wellesley College; National Bureau of Economic Research (NBER)

Kevin S. Milligan

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: July 2006

Abstract

In this paper, we study how the portfolios of elderly U.S. households evolve after retirement, using data from the Health and Retirement Study (HRS). In particular, we investigate the influence of aging and health shocks on a household's ownership of various assets and on the dollar value and share of total assets held in each asset class. We find that households decrease their ownership of most asset classes as they age, with the strongest evidence for principal residences and vehicles, while increasing the share of assets held in bank accounts and CDs. Consistent with prior studies, we find that the death of a spouse is a strong predictor of selling the principal residence. However, we find that widowhood also leads households to sell vehicles, businesses, and real estate and to put money into bank accounts and CDs, and further that other health shocks have very similar impacts. Finally, we explore why health shocks affect asset holdings and find that the effect of a shock is greatly magnified when households have physical or mental impairments. This suggests that factors other than standard risk and return considerations may weigh heavily in many older households' portfolio decisions.

Suggested Citation

Coile, Courtney and Milligan, Kevin S., How Household Portfolios Evolve after Retirement: The Effect of Aging and Health Shocks (July 2006). NBER Working Paper No. w12391, Available at SSRN: https://ssrn.com/abstract=921557

Courtney Coile (Contact Author)

Wellesley College ( email )

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Kevin S. Milligan

University of British Columbia (UBC) - Department of Economics ( email )

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Canada

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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