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Retirement saving with contribution payments and labor income as a benchmark for investments

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  • Berkelaar, Arjan
  • Kouwenberg, Roy

Abstract

In this paper we study the retirement saving problem from the point of view of a plan sponsor, who makes contribution payments for the future retirement of an employee. The plan sponsor considers the employee's labor income as investment-benchmark in order to ensure the continuation of consumption habits after retirement. We demonstrate that the demand for risky assets increases at low wealth levels due to the contribution payments. We quantify the demand for hedging against changes in wage growth and find that it is relatively small. We show that downside-risk measures increase risk-taking at both low and high levels of wealth.
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  • Berkelaar, Arjan & Kouwenberg, Roy, 2003. "Retirement saving with contribution payments and labor income as a benchmark for investments," Journal of Economic Dynamics and Control, Elsevier, vol. 27(6), pages 1069-1097, April.
    • Handle: RePEc:eee:dyncon:v:27:y:2003:i:6:p:1069-1097
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    Cited by:

    1. Iqbal Owadally, 2014. "Tail risk in pension funds: an analysis using ARCH models and bilinear processes," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 301-331, August.
    2. Jules H. van Binsbergen & Michael W. Brandt, 2007. "Optimal Asset Allocation in Asset Liability Management," NBER Working Papers 12970, National Bureau of Economic Research, Inc.
    3. Josa-Fombellida, Ricardo & Navas, Jorge, 2020. "Time consistent pension funding in a defined benefit pension plan with non-constant discounting," Insurance: Mathematics and Economics, Elsevier, vol. 94(C), pages 142-153.
    4. Ayşegül İşcanog̃lu-Çekiç, 2016. "An Optimal Turkish Private Pension Plan with a Guarantee Feature," Risks, MDPI, vol. 4(3), pages 1-12, June.
    5. Josa-Fombellida, Ricardo & Rincón-Zapatero, Juan Pablo, 2012. "Stochastic pension funding when the benefit and the risky asset follow jump diffusion processes," European Journal of Operational Research, Elsevier, vol. 220(2), pages 404-413.
    6. Gabay, Daniel & Grasselli, Martino, 2012. "Fair demographic risk sharing in defined contribution pension systems," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 657-669.
    7. Hernán Rincón-Castro & Martha Elena Delgado-Rojas, 2017. "¿Cuánto tributan efectivamente el consumo, el trabajo y el capital en Colombia?," Coyuntura Económica, Fedesarrollo, vol. 47(1 y 2), pages 97-135, December.
    8. Gupta, Aparna & Li, Lepeng, 2007. "Integrating long-term care insurance purchase decisions with saving and investment for retirement," Insurance: Mathematics and Economics, Elsevier, vol. 41(3), pages 362-381, November.

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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