Research and Reality - A Literature Review on Drawing Down Retirement Financial Savings

MacDonald, Bonnie-Jeanne; Jones, Bruce L.; Morrison, Richard J.; Brown, Robert L.; Hardy, Mary R.

doi:10.2139/ssrn.2003891

Cited by 12 publications

(24 citation statements)

References 54 publications

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“…The third aspect comprises all factors that could influence annuitization choices, which can be grouped into three categories according to their origin, as proposed by MacDonald et al. (). The first category contains rational factors that emerge from personal preferences, characteristics and circumstances, such as gender, age, risk aversion or a bequest motive.…”

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

“…according to their origin, as proposed by MacDonald et al (2013). The first category contains rational factors that emerge from personal preferences, characteristics and circumstances, such as gender, age, risk aversion or a bequest motive.…”

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

“…We next focus on factors that influence annuitization decisions and classify the articles into the three categories suggested by MacDonald et al (2013), as laid out before: rational factors arising from personal preferences and circumstances (Table 4); rational factors arising from environmental limitations ( Table 5, left columns); and behavioral biases ( Table 5, right columns). 11 In Appendix 1, we briefly discuss the sample characteristics with respect to this classification.…”

Section: The Third Aspect Of Annuitization: Determinants Of An Indivimentioning

confidence: 99%

“…Furthermore, several literature reviews address the problem of annuitization decisions. For example, MacDonald et al (2013) consider 100 articles in order to examine the ways in which retirees do/could/should draw down their retirement savings, while also pointing out conceptual and methodological weaknesses in the existing literature. The authors do not explicitly focus on annuitization, but rather give an overview of different strategies that are available for managing retirement wealth (annuitization, self-management and hybrid strategies) and formulate general advice for retirees based on individual and employment-related sources, as well as on the country of residence's tax and benefits transfer system.…”

Section: Introductionmentioning

confidence: 99%

“…Note that the content of our categories does not necessarily coincide with that of MacDonald et al. (), as we include additional factors (e.g., “current level of consumption,” “elasticity of intertemporal substitution,” “income and wealth shocks,” “race and ethnicity”) or split some factors into more specific ones. For example, we distinguish between unexpected changes in the individual's health status (health shocks), poor health in general, and the individual's perceptions about her life expectancy.…”

mentioning

confidence: 99%

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What Do We Know About Annuitization Decisions?

Alexandrova¹,

Gatzert²

2019

Risk Manage Insurance Review

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Against the background of aging societies and increasing life expectancies, the protection of individuals from outliving their savings has become increasingly relevant. Annuities represent insurance against longevity risk and can prevent old‐age poverty. The aim of this article is to present the current state of theoretical, empirical and experimental evidence with regard to annuitization decisions. Toward this end, we conduct a systematic literature review that includes 89 articles. Based on this, we study welfare effects of mandatory annuitization, annuitization rates and the optimal fraction of wealth to be annuitized, as well as determinants of retirees’ choice to annuitize and their impact on annuity demand. Finally, we present possible solutions for overcoming the low uptake of annuities based on its causes. One main result is that behavioral biases in annuitization decisions particularly require considerably more theoretical research and empirical evidence, and that theoretical models already appear to well explain empirically observed annuitization rates.

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Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

Section: The Third Aspect Of Annuitization: Determinants Of An Indivimentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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What Do We Know About Annuitization Decisions?

Alexandrova¹,

Gatzert²

2019

Risk Manage Insurance Review

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Drawing Down Retirement Savings—do Pensions, Taxes and Government Transfers Matter Much for Optimal Decisions?

MacDonald

Morrison²,

Avery³

et al. 2018

ASTIN Bull.

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This paper examines the importance of pensions (employment and social security), taxes and government transfers for alternative retirement savings drawdown strategies (DS), compared to the conventional approach in published literature of using a gross income concept obtainable from retirement savings alone. Using a lifetime utility framework, our longitudinal dynamic micro-simulation model incorporates risk aversion, stochastic markets, stochastic mortality and the interactions among sources of retirement income within the complex Canadian tax and social benefit system, enabling us to rank commonly advocated DS and to ask whether incorporating pensions, taxes and transfers alters those rankings. Our findings show the importance of treating the evaluation of alternative DS as a comprehensive and integrated problem by including all sources of income — including pensions, taxes and government transfers. Using restricted income measures can potentially lead to simplistic, and possibly misleading, conclusions.

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Optimal Asset Allocation for Dc Pension Decumulation With a Variable Spending Rule

Vetzal¹,

Westmacott²

2020

ASTIN Bull.

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We determine the optimal asset allocation to bonds and stocks using an annually recalculated virtual annuity (ARVA) spending rule for DC pension plan decumulation. Our objective function minimizes downside withdrawal variability for a given fixed value of total expected withdrawals. The optimal asset allocation is found using optimal stochastic control methods. We formulate the strategy as a solution to a Hamilton–Jacobi–Bellman (HJB) Partial Integro Differential Equation (PIDE). We impose realistic constraints on the controls (no-shorting, no-leverage, discrete rebalancing) and solve the HJB PIDEs numerically. Compared to a fixed-weight strategy which has the same expected total withdrawals, the optimal strategy has a much smaller average allocation to stocks and tends to de-risk rapidly over time. This conclusion holds in the case of a parametric model based on historical data and also in a bootstrapped market based on the historical data.

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Research and Reality - A Literature Review on Drawing Down Retirement Financial Savings

Cited by 12 publications

References 54 publications

What Do We Know About Annuitization Decisions?

What Do We Know About Annuitization Decisions?

Drawing Down Retirement Savings—do Pensions, Taxes and Government Transfers Matter Much for Optimal Decisions?

Optimal Asset Allocation for Dc Pension Decumulation With a Variable Spending Rule

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