What question did this study set out to answer?

To establish a theoretical foundation for age-phased reductions in equity holdings by modeling subsistence wealth requirements and capitalized human capital across a lifecycle.

November 1, 1989Proceedings of the National Academy of SciencesOpen Access

A case at last for age-phased reduction in equity.

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To establish a theoretical foundation for age-phased reductions in equity holdings by modeling subsistence wealth requirements and capitalized human capital across a lifecycle.
Formulated lifecycle portfolio choice models assuming constant relative risk aversion and random-walk securities returns.
Analyzed the effects of introducing mandatory minimum subsistence wealth requirements at retirement versus across every life period.
Evaluated the interaction between the Merton paradox regarding subsistence-consumption present value and age-related declines in capitalized human capital.
Requiring a guaranteed minimum subsistence wealth at retirement deduces an optimal investment strategy characterized by higher risk tolerance and greater equity allocation during youth.
Mandating subsistence consumption in every period paradoxically minimizes risk tolerance in early life due to the high present discounted value of future subsistence requirements.
Accounting for capitalized human capital, which declines with age, offsets and reverses the Merton paradox to support standard age-phased equity reductions.

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Implication

Theoretical economic analysis reveals how subsistence wealth requirements and declining human capital justify reduced equity exposure with age, indicating an analytical basis for lifecycle investing.

Cite This Study

Paul A. Samuelson (1989) studied this question.

synapsesocial.com/papers/6a181f49d990e918e6b4ed94 https://doi.org/10.1073/pnas.86.22.9048

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Implication

Theoretical economic analysis reveals how subsistence wealth requirements and declining human capital justify reduced equity exposure with age, indicating an analytical basis for lifecycle investing.

A case at last for age-phased reduction in equity.

Key Points

Discussion

Implication

Cite This Study

A case at last for age-phased reduction in equity.

Key Points

Discussion

Implication

Cite This Study

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