Savings, Portfolio Choice, and Retirement Expectations

Published: 2006


Studying household investment behavior is essential for understanding the full consequences of old age social security benefits. Using data from six waves of the Health and Retirement Study, we analyze the dynamics of portfolio composition before respondents start claiming social security benefits. We consider ownership as well as amounts held of several types of assets and debts. Using panel data censored regression models, portfolio adjustment is explained on the basis of demographics like gender, race, and year of birth, education level, household income, and perceived social security entitlements. We find that expectations of old age social security benefits have little effect on portfolio decisions, although there is some evidence that higher expected social security benefits lead to more risky financial investments, particularly in IRAs.

Key Findings

    • In general, people’s expectations about their Social Security benefits have little effect on portfolio investment decisions.
    • There is some evidence that people who expect to have higher Social Security benefits will tend to make riskier financial investments, especially in IRAs.