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How Portfolios Evolve After Retirement: The Effect of Health Shocks

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by Courtney Coile and Kevin Milligan December 2005

WP#2005-17  

Abstract

We study the household portfolios of the elderly using data from the Health and Retirement Study. In particular, we investigate the influence of aging and health shocks on both a household's ownership of various assets and 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. Using several types of health shocks, we proceed to relate the observed asset changes to the onset of different health problems. Consistent with the previous literature, we find that the death of a spouse is a strong predictor of selling the principal residence. However, we find that more subtle health shocks have equally strong, although more gradual, impacts on the asset choices of the elderly. These findings help us to understand the methods by which and extent to which households are able to self-insure against some of the risks of old age.

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Courtney Coile is an Assistant Professor of Economics at Wellesley College in Wellesley, MA . Kevin Milligan is an Assistant Professor of Economics at the University of British Columbia. The research reported herein was performed (in part) pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The findings and conclusions expressed are solely those of the authors and should do not represent the views of SSA, any agency of the Federal Government, Wellesley College, the University of British Columbia or the Center for Retirement Research at Boston College. Milligan acknowledges the support of the Social Sciences and Humanities Research Council of Canada. We thank Pierre Brochu for research assistance.