Author: Wolfram J. Horneff
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We derive the optimal portfolio choice over the life-cycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to incomplete annuity markets offering a hedge against mortality risk. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life, to earn the equity premium, and to ensure estate for the heirs. Furthermore, we assess the importance of common explanations for limited participation in annuity markets.
Author: Wolfram J. Horneff
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We derive the optimal portfolio choice over the life-cycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to incomplete annuity markets offering a hedge against mortality risk. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life, to earn the equity premium, and to ensure estate for the heirs. Furthermore, we assess the importance of common explanations for limited participation in annuity markets.
Author: Michael Zisis Stamos
Publisher:
ISBN:
Category :
Languages : en
Pages : 141
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Book Description
Author: Ian Ayres
Publisher: ReadHowYouWant.com
ISBN: 1458758427
Category : Business & Economics
Languages : en
Pages : 358
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Book Description
Diversification provides a well-known way of getting something close to a free lunch: by spreading money across different kinds of investments, investors can earn the same return with lower risk (or a much higher return for the same amount of risk). This strategy, introduced nearly fifty years ago, led to such strategies as index funds. What if we were all missing out on another free lunch that’s right under our noses? InLifecycle Investing, Barry Nalebuff and Ian Ayres-two of the most innovative thinkers in business, law, and economics-have developed tools that will allow nearly any investor to diversify their portfolios over time. By using leveraging when young-a controversial idea that sparked hate mail when the authors first floated it in the pages ofForbes-investors of all stripes, from those just starting to plan to those getting ready to retire, can substantially reduce overall risk while improving their returns. InLifecycle Investing, readers will learn How to figure out the level of exposure and leverage that’s right foryou How the Lifecycle Investing strategy would have performed in the historical market Why it will work even if everyone does it Whennotto adopt the Lifecycle Investing strategy Clearly written and backed by rigorous research,Lifecycle Investingpresents a simple but radical idea that will shake up how we think about retirement investing even as it provides a healthier nest egg in a nicely feathered nest.
Author: Patrick J. Collins
Publisher: CFA Institute Research Foundation
ISBN: 193466796X
Category : Business & Economics
Languages : en
Pages : 106
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Book Description
The past 50 years have seen an abundance of research on retirement planning and longevity risk. Reviewed here is the academic side of the research and its varied viewpoints and nuances. The evolution of retirement risk models, retirement portfolio problems and solutions, and annuities are some of the many topics covered.
Author: Gary D. Hansen
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete. Empirical studies find that consumption tends to rise early in life, peak around age 45-55, and to decline after that. Our calibrated model exhibits life cycle consumption that is consistent with this pattern. This follows from the fact that, due to a lack of annuity markets, households discount the future more heavily as they age and their probability of survival falls. Once an unfunded social security system is introduced, the profile is still hump shaped, but the decline in consumption does not begin until after retirement in our base case. Adding a bequest motive causes this decline to begin at a younger age.
Author: Wolfram J. Horneff
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
We derive the optimal portfolio choice and consumption pattern over the lifecycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to deferred annuities. Deferred annuities offer a hedge against mortality risk and provide similar benefits as Social Security. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life and to earn the equity premium. We find a marginal difference between a strategy involving deferred annuities and one where the investor can purchase immediate life annuities.
Author: Moshe A. Milevsky
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
In this paper we investigate the actual portfolio choice and asset allocation behavior of individuals who acquire insurance in the form of an out - of - the - money long dated put option on their investment funds. We compare their allocations against those who do not elect and pay for this type of protection; dubbed a longevity put. Using a unique database of nearly a million variable annuity (VA) policyholders collected by seven different insurance companies, we find that these investors take on 5% to 30% additional risky/equity exposure when the longevity put option is selected. And, when this longevity put option is not purchased - so the investment portfolio resembles a conventional mutual fund - we confirm the classical life-cycle age phased reduction in equity.We offer a rudimentary model of utility - maximizing behavior in the presence of this longevity put that indeed justifies the increased allocation to risk, provided the investor is willing, able and understands to exercise the annuity option if - and - when it matures in the money. This, of course, is debatable given the long standing body of evidence - first documented by Modigliani(1986) - that individuals intensely dislike annuitization despite its welfare enhancing properties.Regardless, we believe our paper is the first to examine actual asset allocations within variable annuity policies, which is currently a $1.5 trillion dollar market in the U.S. and is expected to grow as aging baby boomers take control of their own retirement assets.
Author: David Schiess
Publisher: Sudwestdeutscher Verlag Fur Hochschulschriften AG
ISBN: 9783838104812
Category :
Languages : de
Pages : 248
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Book Description
The thesis' focus is on the consumption/portfolio optimisation and the optimal annuitisation decision of a pensioner in a continuous time setting. Technically, this involves solving a combined optimal stopping and optimal control problem (COSOCP). The retiree faces the crucial question of how much to consume and how much to invest in the risky asset (financial market risk). This creates the optimal control aspect of the COSOCP. The second source of uncertainty is the pensioner's longevity risk, which is why we include an annuity market. The pensioner has to find the optimal time to annuitise his wealth. This constitutes the optimal stopping aspect of the COSOCP. The task of finding the pensioner's optimal consumption, asset allocation and annuity decision rule leads to the interesting interplay of optimal control theory, optimal stopping theory and finally, mortality and bequest issues.
Author:
Publisher:
ISBN:
Category : Portfolio management
Languages : en
Pages : 31
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Book Description
This paper derives optimal life cycle portfolio asset allocations as well as annuity purchases trajectories for a consumer who can select her hours of work and also her retirement age. Using a realistically-calibrated model with stochastic mortality and uncertain labor income, we extend the investment universe to include not only stocks and bonds, but also survival-contingent payout annuities. We show that making labor supply endogenous raises older peoples' equity share; substantially increases work effort by the young; and markedly enhances lifetime welfare. Also, introducing annuities leads to earlier retirement and higher participation by the elderly in financial markets. Finally, if we allow for an age-dependent leisure preference parameter, this fits well with observed evidence in that it generates lower work hours and smaller equity holdings at older ages as well as sensible retirement age patterns.
