Loretti Dobrescu, Akshay Shanker, Hazel Bateman, Ben R Newell and Susan Thorp
Abstract: We study the relation between retirement savings and housing using a life cycle model of consumption and portfolio choice with risky earnings, lumpy housing with collateralized borrowing, and financial assets inside and outside pension plans. We consistently find complementarity from pensions to housing, and substitutability in reverse. The mechanism behind this asymmetry, and especially how it unfolds across genders, stems from behavioral and housing frictions that jointly drive the timing of savings: incentivizing pension savings boosts homeownership in anticipation of a prosperous retirement, while more attractive housing absorbs pension investments. Decomposing the gender differential in lifetime savings, we show that earnings inequality and preferences drive 64.2% of the wealth gap, behavioral frictions explain another 33.5%, and housing adjustment costs, that affect males and females differently, account for the rest.
Keywords: life cycle savings, portfolio choice, pensions, housing, method of moments.
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