Optimal life-cycle investing with flexible labor supply
Subtitle: a welfare analysis of life-cycle funds
By: Francisco J. Gomes, Laurence J. Kotlikoff, Luis M. Viceira.
Contributors: Kotlikoff, Laurence J.; Viceira, Luis M.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13966; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13966.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We investigate optimal consumption, asset accumulation and portfolio decisions in a realistically calibrated life-cycle model with flexible labor supply.  Our framework allows for wage rate uncertainly, variable labor supply, social security benefits and portfolio choice over safe bonds and risky equities.  Our analysis reinforces prior findings that equities are the preferred asset for young households, with the optimal share of equities generally declining prior to retirement.  However, variable labor materially alters pre-retirement portfolio choice by significantly raising optimal equity holdings.  Using this model, we also investigate the welfare costs of constraining portfolio allocations over the life cycle to mimic popular default investment choices in defined-contribution pension plans, such as stable value funds, balanced funds, and life-cycle (or target date) funds.  We find that life-cycle funds designed to match the risk tolerance and investment horizon of investors have small welfare costs.  All other choices, including life-cycle funds which do not match investors' risk tolerance, can have substantial welfare costs"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/2/2008.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.