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Lifetime investment and consumption using a defined-contribution pension scheme

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  • Emms, Paul
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    Abstract

    During the accumulation phase of a defined-contribution pension scheme, a scheme member invests part of their stochastic income in a portfolio of a stock and a bond in order to build up sufficient funds for retirement. It is assumed that the remainder of their salary pre-retirement is consumed, an annuity is purchased at retirement, and the stock allocation and consumption pre-retirement maximise the total expected lifetime consumption using a CARA utility function. Perfect correlation between the scheme member's income and the stock price leads to analytical expressions for the controls for a general income model. If the correlation is imperfect then analytical controls are found for two particular stochastic income models.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 36 (2012)
    Issue (Month): 9 ()
    Pages: 1303-1321

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    Handle: RePEc:eee:dyncon:v:36:y:2012:i:9:p:1303-1321

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    Web page: http://www.elsevier.com/locate/jedc

    Related research

    Keywords: Defined-contribution pension; Lifecycle model; Stochastic income; Replacement ratio;

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    References

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    Cited by:
    1. Yao, Haixiang & Yang, Zhou & Chen, Ping, 2013. "Markowitz’s mean–variance defined contribution pension fund management under inflation: A continuous-time model," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 851-863.
    2. Blake, David & Wright, Douglas & Zhang, Yumeng, 2013. "Target-driven investing: Optimal investment strategies in defined contribution pension plans under loss aversion," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 195-209.
    3. Yao, Haixiang & Lai, Yongzeng & Ma, Qinghua & Jian, Minjie, 2014. "Asset allocation for a DC pension fund with stochastic income and mortality risk: A multi-period mean–variance framework," Insurance: Mathematics and Economics, Elsevier, vol. 54(C), pages 84-92.
    4. Blake, David & Wright, Douglas & Zhang, Yumeng, 2014. "Age-dependent investing: Optimal funding and investment strategies in defined contribution pension plans when members are rational life cycle financial planners," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 105-124.

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