The effect of objective formulation on retirement decision making |
| |
Institution: | 1. DTU Management Engineering, Management Science, Technical University of Denmark, Produktionstorvet 426, Kgs. Lyngby 2800, Denmark;2. Department of Operations Research and Financial Engineering, Bendheim Center for Finance, Princeton University, Princeton, NJ 08544, United States |
| |
Abstract: | For a retiree who must maintain both investment and longevity risks, we consider the impact on decision making of focusing on an objective relating to the terminal wealth at retirement, instead of a more correct objective relating to a retirement income. Both a shortfall and a utility objective are considered; we argue that shortfall objectives may be inappropriate due to distortion in results with non-monotonically correlated economic factors. The modelling undertaken uses a dynamic programming approach in conjunction with Monte-Carlo simulations of future experience of an individual to make optimal choices. We find that the type of objective targetted can have a significant impact on the optimal choices made, with optimal equity allocations being up to 30% higher and contribution amounts also being significantly higher under a retirement income objective as compared to a terminal wealth objective. The result of these differences can have a significant impact on retirement outcomes. |
| |
Keywords: | Bootstrap method Simulation Dynamic programming Optimisation Retirement |
本文献已被 ScienceDirect 等数据库收录! |
|