"Using annual data for stock and bond returns from 1926 through 2011, this paper first investigates the distribution of historic returns and then uses that distribution to determine optimal consumption and portfolio asset allocation for a risk-averse household facing labor-income uncertainty and longevity risk. The household is also entitled to Social Security retirement benefits.... The majority of households derive most of their lifetime consumption from labor market earnings and Social Security, with earnings from financial assets being relatively insignificant. Unless households plan to accumulate a substantial amount of financial assets and invest a substantial share of these assets in stocks, their incorrect portfolio allocations reduce their lifetime utility and lifetime consumption relatively little."  MORE >>