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On the practical implementation of retirement gains by using an upside and a downside terminal wealth constraint

Author

Listed:
  • Catherine Donnelly

    (Department of Actuarial Mathematics and Statistics, and the Maxwell Institute for Mathematical Sciences, Heriot-Watt University)

  • Montserrat Guillén

    (Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona)

  • Jens Perch Nielsen

    (Cass Business School, City University
    Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona)

Abstract

We analyze an investment strategy for an investor with a savings plan for retirement consisting on constraining the terminal wealth accumulated after the savings period by setting an upper and lower bound. We carry out a simulation of the terminal wealth after a savings period of thirty years by using daily, monthly, weekly and yearly updates. We calculate the percentiles of the final wealth and the corresponding lifetime annuity that the pension saver will receive during the consumption period. We observe how that the simulated values converge to the theoretical values of the percentiles when the frequency of update increases. Finally, in the numerical example the effect of inflaction is also considered.

Suggested Citation

  • Catherine Donnelly & Montserrat Guillén & Jens Perch Nielsen, 2015. "On the practical implementation of retirement gains by using an upside and a downside terminal wealth constraint," Working Papers 2015-07, Universitat de Barcelona, UB Riskcenter.
    • Handle: RePEc:bak:wpaper:201507
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    File URL: http://www.ub.edu/rfa/research/WP/UBriskcenterWP201507.pdf
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    References listed on IDEAS

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    1. Michael E. Drew & Anup Basu & Alistair Byrnes, 2009. "Dynamic Lifecycle Strategies for Target Date Retirement Funds," Discussion Papers in Finance finance:200902, Griffith University, Department of Accounting, Finance and Economics.
    2. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C. & Zeldes, Stephen P., 2014. "What makes annuitization more appealing?," Journal of Public Economics, Elsevier, vol. 116(C), pages 2-16.
    3. Basak, Suleyman, 1995. "A General Equilibrium Model of Portfolio Insurance," The Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 1059-1090.
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    Cited by:

    1. Mercedes Ayuso & Montserrat Guillen & Jens Perch Nielsen, 2019. "Improving automobile insurance ratemaking using telematics: incorporating mileage and driver behaviour data," Transportation, Springer, vol. 46(3), pages 735-752, June.
    2. Manuela Alcañiz & Aïda Solé-Auró, 2018. "Ageing and health-related quality of life: evidence from Catalonia (Spain)," Working Papers 2018-01, Universitat de Barcelona, UB Riskcenter.

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    More about this item

    Keywords

    retirement; pension; smoothing; saving strategies; investment.;
    All these keywords.

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