Print this page



Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth

Wei Sun, Robert K. Triest, and Anthony Webb

A considerable literature examines the optimal decumulation of financial wealth in retirement.
We extend this line of research to incorporate housing, which comprises the majority of most
households’ non-pension wealth.
We estimate the relationship between the returns on housing, stocks, and bonds, and simulate a
variety of decumulation strategies incorporating reverse mortgages. We show that
homeowner’s reversionary interest, the amount that can be borrowed through a reverse
mortgage, is a surprisingly risky asset. Under our baseline assumptions, we find that the
average household would be as much as 24 percent better off taking a reverse mortgage as a
lifetime income relative to what appears to be the most common strategy: delaying tapping
housing wealth until financial wealth is exhausted and then taking a line of credit. In addition,
the results show that housing wealth displaces bonds in optimal portfolios, making the low rate
of participation in the stock market even more of a puzzle.