Racial/ethnic differences in high return investment ownership: A decomposition analysis

The racial/ethnic disparities of risky asset ownership were investigated. In the 2004 and 2007 Survey of Consumer Finances datasets, 30% of Hispanic, 36% of Black, and 65% of White households had high return investments such as stocks, investment real estate, or private business assets. Logistic analysis shows that Black and Hispanic households are much less likely to have high return assets, even after controlling for other factors such as education. However, Blinder-Oaxaca decomposition analyses show that if Black households had the same characteristics, including risk tolerance, as White households, they would have the same ownership rates for high return investments, and the gap between Hispanic and White households is much smaller than implied by standard logistic regression. © 2010 Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved

Is Life Annuity an Effective Tool for Managing Longevity Risk in Korea?

We examine optimal life annuity planning for Korean pre-retirees with a focus on the optimal timing of annuitization. The objective is to maximize the expected total utility from consumption during the retirement period. Benchmark cases with various values for net wealth, proportion of net wealth that is annuitized at the time of retirement and level of risk aversion are applied. We confirm that life annuity is an effective tool for managing longevity risk in Korea and it is important to select the timing of annuitization carefully to maximize the expected total utility and to avoid unnecessary financial ruin during retirement. In addition, we find that the optimal annuity strategy is more beneficial for those with lower levels of wealth than others. © 2012 The Authors. Asian Economic Journal © 2012 East Asian Economic Association and Blackwell Publishing Pty Ltd

The valuation and redistribution effect of the korea national pension

This paper evaluates the Korea National PensionKNP and investigates its redistribution effects. The educational level is used as a proxy for mortality and various socioeconomic factors are considered. The financial and utility-based analyses reveal strong progressive redistribution with income level. Also, the utility-based analysis indicates significant progressive redistribution with non-pension asset level but no significant redistribution with the educational level. Generally, the KNP is extremely valuable and its value seems higher with a pre-existing private annuity especially for the poor. Finally, when people are assumed to spend at least the minimum consumption level, it becomes more beneficial. Hitotsubashi University

Sources of income inequality among the elderly

Sources of inequality among American households with a retired elderly head were examined by decomposition of Gini coefficients. Inequality of investment and labor income contributed most to overall income inequality. Income inequality of three types of households - couples with one retiree, retired couples, and retired singles were studied in terms of sources of income inequality. Inequality of investment income contributed most to income inequality for retired singles and for retired couples. © 1999, Association for Financial Counseling and Planning Education

The increasing financial obligations burden of US households: Who is affected?

The purpose of this paper is to examine factors associated with changes in the proportion of households with high financial obligations ratios in the United States. The proportion of households paying more than 40% of income for debt, rent, vehicle leases, property taxes and homeowners' insurance, which we refer to as having a heavy burden, increased from 18% in 1992 to 27% in 2007. Multivariate analysis of a combination of six Survey of Consumer Finances data sets indicates that the likelihood of having a heavy burden was positively associated with homeownership, self-employment and retirement status. Those with an optimistic 5-year expectation of the economy were more likely to be in a household with a heavy burden. Education was positively related to having a heavy burden, suggesting that having a heavy burden is not simply a cognitive error. © 2012 Blackwell Publishing Ltd

Homeownership and financial strain following the collapse of the housing market: A comparative study on loan delinquencies between black and white households

The objectives of this study were to evaluate the extent to which homeownership contributed to household financial strain as measured by loan delinquency after the onset of the recent housing market crash, and to examine if the impact of homeownership on household financial strain differed for Black and White households. Using data from the 2010 Survey of Consumer Finances, we found that, after controlling for other factors, a household’s housing preferences had a potential effect on the likelihood of experiencing financial strain following the collapse of residential housing prices. In addition, Black homeowners were more likely to have experienced financial strain following the housing collapse than were White homeowners, regardless of the time period in which the home was purchased. The implications of the findings for public policy, personal financial planning and education, and further research are presented. © 2015 Association for Financial Counseling and Planning Education®

Assessing adequacy of retirement income for U.S. households: A replacement ratio approach

The retirement income replacement ratio is projected using the Federal Reserve's Survey of Consumer Finances. On the basis of lognormal portfolio projections and current portfolio allocation, at least 44 per cent of pre-retired households will not be able to maintain 70 per cent of permanent income standard in retirement. Households planning to retire later and taking a high financial risk in savings and investments have a higher projected replacement ratio. Households having a high proportion of non-housing assets held in equity or bonds have a higher projected replacement ratio than those having a high proportion in cash equivalents. © 2011 The International Association for the Study of Insurance Economics

Which households think they save?

We examine household saving in the context of a prescriptive model. Using Survey of Consumer Finances data sets in the 1995-2004 period, 57% of households reported spending less than income. Many effects in the multivariate analysis are consistent with a prescriptive model. We discuss other effects in terms of possible differences in the ability to plan or the accuracy of reporting by the respondent. Young households are more likely to report saving than older households. Black households are less likely to report saving than white households. Single female households are less likely to report saving than single male households. Copyright 2010 by The American Council on Consumer Interests

Optimal annuity planning and longevity risk: Evidence from Korea

This study examines annuity planning using an optimization framework. An optimization problem is formulated with the objective of maximizing the lifetime utility of consumption and bequestable wealth, and benchmark cases for Korean households are applied. We extend the optimization model suggested in Gupta and Li (2007) by incorporating realistic constraints, such as installment premium contracts, deferred annuity payments and the possibility of borrowing. Further, we have considered a variety of longevity cases. The results confirmed that an annuity is an effective tool for managing longevity risk, and annuitization timing is crucial for the maximization of lifetime utility. © 2011 Taylor & Francis

REVERSE MORTGAGES FOR MANAGING LONGEVITY RISK IN KOREA

This study examines how longevity risk can be alleviated by using reverse mortgage loan system in Korea, Joo-Taek-Yeon-Keum (JTYK). We compare the expected utility value of JTYK borrowers during retirement with that of non-JTYK borrowers, and identify characteristics of groups earning the greatest benefits from the JTYK. The results imply that it is especially beneficial for homeowners aged 67 and older, and its benefit increases if the bequest value is included. We also calculate the Money's Worth Ratio (MWR) of the JTYK, and show that MWRs increase as the opt-in age increases if the bequest is considered as financial gain