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The Market for Retirement Financial Advice$
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Olivia S. Mitchell and Kent Smetters

Print publication date: 2013

Print ISBN-13: 9780199683772

Published to Oxford Scholarship Online: January 2014

DOI: 10.1093/acprof:oso/9780199683772.001.0001

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How Important is Asset Allocation to Americans’ Financial Retirement Security?

How Important is Asset Allocation to Americans’ Financial Retirement Security?

(p.89) Chapter 5 How Important is Asset Allocation to Americans’ Financial Retirement Security?
The Market for Retirement Financial Advice

Alicia H. Munnell

Natalia Orlova

Anthony Webb

Oxford University Press

Financial advice tends to focus on financial assets, but other levers may be more important for most households. This chapter proceeds in three stages. First, we report a simple Excel spreadsheet exercise that provides a stylized example of the tradeoff between returns and time spent in the labor force. Next, we use data from the Health and Retirement Study (HRS) on pre-retirees age 51–64 to see how the gap between retirement needs and retirement resources is affected by working longer, taking out a reverse mortgage, controlling spending, and shifting all assets to equities with no risk. Last, we use a simple dynamic programming model to calculate a risk-adjusted measure of the value for the average household of moving from a typical conservative portfolio to an optimal portfolio. Our answer from all three exercises suggests that the focus on asset allocation is misplaced.

Keywords:   asset allocation, controlling spending, optimal allocation, optimal portfolio, replacement rate, retirement, retirement security, reverse mortgage, saving, work longer

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