Investing for retirement: Terminal wealth constraints or a desired wealth target?

Donnelly, Catherine; Khemka, Gaurav; Lim, William

doi:10.1111/eufm.12351

Cited by 6 publications

(3 citation statements)

References 38 publications

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“…In the framework of prospect theory (PT), Blake et al (2013) and Donnelly et al (2022) treated the price of a real-life annuity at each age as the target fund throughout time and maximized the expected value of the total discounted PT utility up to retirement. The PT utility function enables the plan member to be risk seeking in the domain of losses and risk averse in the domain of gains by choosing different curvature parameters for gains and losses.…”

Section: Introductionmentioning

confidence: 99%

“…Compared to CRRA preference, this strategy is more focused on achieving the specified target fund. Donnelly et al (2022) extended the framework by incorporating a stochastic non-tradable labour income process and imposing time-dependent upper and lower bounds to ensure the participant's fund value was between particular bounds at retirement. It showed that the participant's retirement outcomes are robustly centred around the target fund, and that imposing terminal wealth constraints does not improve the certainty of achieving the desired target, while it increases the chance of obtaining a lower income, which is in line with one of the findings in Basak and Shapiro (2001).…”

Section: Introductionmentioning

confidence: 99%

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Benchmark-driven investment for DC pension plans

Pelsser,

Yang

2024

Journal of Pension Economics and Finance

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We investigate whether a benchmark and non-constant risk aversion affect the probability density distribution of optimal wealth at retirement. We maximize the expected utility of the ratio of pension wealth at retirement to an inflation-indexed benchmark. Together with a threshold and a lower bound, we are able to generate closed-form solutions. We find that this non-constant risk aversion type of utility could shift the probability density distribution of optimal wealth more towards the benchmark, and that the probability of achieving a certain percentage of the desired benchmark could be increased. The probability density distribution generated under constant relative risk aversion (CRRA) risk preference is more widely spread along the benchmark.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Benchmark-driven investment for DC pension plans

Pelsser,

Yang

2024

Journal of Pension Economics and Finance

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“…We mainly employ C to adjust the coverage or funding ratio (F 0 ). In Donnelly et al (2022), the authors make use of a similar definition for the value of a life annuity. Noting that Z T outlines a normally distributed random variable, it is clear that the expression for a T identifies a sum of τ A log-normally distributed processes.…”

Section: Benchmark and Life Annuitymentioning

confidence: 99%

Duality methods for stochastic optimal control problems in finance

Kamma

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Delegated investment in retirement savings: is there value added?

Huang,

Khemka,

Chong

2024

Ann. actuar. sci.

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We study a discrete-time life cycle retirement planning problem for individual workers with four distinct investment options: self-management with dynamic investment (S), self-management with benchmark investment (B), hire-management with flexible allocation ( $\text{H}_{1}$ ), and hire-management with alpha focus ( $\text{H}_{2}$ ). We examine the investment strategies and consumption patterns during the defined contribution fund accumulation period, ending with a life annuity purchase at retirement to finance post-retirement consumption. Based on the calibrated model using US data, we employ numerical dynamic programming technique to optimize worker’s financial decisions. Our analysis reveals that, despite the agency risk, delegated investments can add value to a worker’s lifetime utility, with the $\text{H}_2$ option yielding the best lifetime utility outcome. However, after taking the fund management fee into consideration, we find that both the $\text{H}_1$ and $\text{H}_2$ options may not offer additional value compared to the S option, yet they still surpass the B option in performance.

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Investing for retirement: Terminal wealth constraints or a desired wealth target?

Cited by 6 publications

References 38 publications

Benchmark-driven investment for DC pension plans

Benchmark-driven investment for DC pension plans

Duality methods for stochastic optimal control problems in finance

Delegated investment in retirement savings: is there value added?

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