Retirement saving with contribution payments and labor income as a benchmark for investments
AbstractIn 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 27 (2003)
Issue (Month): 6 (April)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jedc
Other versions of this item:
- Berkelaar, A.B. & Kouwenberg, R.R.P., 2003. "Retirement saving with contribution payments and labor income as a benchmark for investments," Econometric Institute Research Papers EI 9946/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- 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
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
- Merton, Robert C., 1971.
"Optimum consumption and portfolio rules in a continuous-time model,"
Journal of Economic Theory,
Elsevier, vol. 3(4), pages 373-413, December.
- R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
- O'Brien, Thomas, 1987. "A two-parameter family of pension contribution functions and stochastic optimization," Insurance: Mathematics and Economics, Elsevier, vol. 6(2), pages 129-134, April.
- Hyeng Keun Koo, 1999. "Consumption and portfolio selection with labor income: A discrete-time approach," Computational Statistics, Springer, vol. 50(2), pages 219-243, October.
- Nicholas Barberis, 2000. "Investing for the Long Run when Returns Are Predictable," Journal of Finance, American Finance Association, vol. 55(1), pages 225-264, 02.
- Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Capital market equilibrium in a mean-lower partial moment framework," Journal of Financial Economics, Elsevier, vol. 5(2), pages 189-200, November.
- Haberman, Steven & Sung, Joo-Ho, 1994. "Dynamic approaches to pension funding," Insurance: Mathematics and Economics, Elsevier, vol. 15(2-3), pages 151-162, December.
- Hakansson, Nils H, 1969. "Optimal Investment and Consumption Strategies under Risk, an Uncertain Lifetime, and Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(3), pages 443-66, October.
- Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Abstract: Capital Market Equilibrium in a Mean-Lower Partial Moment Framework," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 635-635, November.
- Brennan, Michael J. & Schwartz, Eduardo S. & Lagnado, Ronald, 1997. "Strategic asset allocation," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1377-1403, June.
- 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.
- 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.
- 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.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.