TY  - BOOK
AU  - Li,Jialun
AU  - Smetters,Kent
ED  - National Bureau of Economic Research.
TI  - Optimal Portfolio Choice with Wage-Indexed Social Security
T2  - NBER working paper series
PY  - 2011///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - May 2011; Hardcopy version available to institutional subscribers
N2  - This paper re-examines the classic question of how a household should optimally allocate its portfolio between risky stocks and risk-free bonds over its lifecycle. We show that allowing for the wage indexation of social security benefits fundamentally alters the optimal decisions. Moreover, the optimal allocation is close to observed empirical behavior. Households, therefore, do not appear to be making large "mistakes," as sometimes believed. In fact, traditional financial planning advice, as embedded in "target date" funds - whose enormous recent growth has been encouraged by new government policy - often leads to even relatively larger "mistakes" and welfare losses
UR  - https://www.nber.org/papers/w17025
UR  - http://dx.doi.org/10.3386/w17025
ER  -