| Over the next quarter century there will be a dramatic shift in the percentage of the U.S. population that is retired. This will strain entitlement programs such as social security and has the potential to impact capital markets. In this paper I present evidence of changes in the asset holdings of investors over the age of 65 during the last two decades. The percentage of seniors with stock investments and loans collateralized by their primary residence increased, and among participants there were increases in the stock share of financial assets and the fraction of home collateral used. I also find that these balances are larger for relatively younger seniors. To see if these increases can be explained by movements in exogenous factors I introduce a life-cycle model of investment and consumption and compare the model predictions with the empirical trends. I find that the observed changes in stock and home loan participation and balances are too large to be solely caused by movements in expected future stock returns, interest rates, life expectancy, retirement income or home prices over this time period. I conclude that declining risk aversion or transactions costs contribute to the trends. |
