EURO 2025 Leeds
Abstract Submission

587. Life-cycle consumption, investment, and housing decisions under subjective survival beliefs with deferred annuities and home equity release

Invited abstract in session MA-9: Innovation in Insurance and Financial Risk Management, stream OR in Finance and Insurance .

Monday, 8:30-10:00
Room: Clarendon SR 2.01

Authors (first author is the speaker)

1. Chul Jang
Finance, Risk and Banking, University of Nottingham
2. Seung Yeon Jeong
Institute of Basic Science, Sungkyunkwan University
3. Iqbal Owadally
Bayes Business School, City St George's, University of London

Abstract

We examine life-cycle consumption, investment, and housing decisions when a risk-averse individual holds subjective survival beliefs. Younger individuals often exhibit pessimistic survival beliefs, whereas older individuals tend to be more optimistic. Numerical analysis using multistage stochastic programming shows that the subjective survival beliefs can lead young individuals to save less, invest less in equity, and prefer renting to ownership for housing. This results in lower wealth accumulation over their lifetime and reduced consumption in retirement. We also investigate how the decisions change when deferred annuities and home equity release are available as retirement income sources. Availability of these products can lead individuals with subjective beliefs to reduce consumption in early ages, increase housing ownership, and improve wealth accumulation over their lifetime. Overall, these products narrow the welfare gap between individuals with subjective and objective survival beliefs across different ages.

Keywords

Status: accepted

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