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The effects of age pension on retirement drawdown choices

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  • Wiafe, Osei K.
  • Basu, Anup K.
  • Chen, John

Abstract

We compare alternative drawdown strategies in retirement to a life annuity benchmark when retirees have access to government means-tested Age Pension. By adopting Epstein-Zin utility preferences which enables disentangling relative risk aversion (RRA) from elasticity of intertemporal substitution (EIS), our results suggest that retirees possess RRA levels which are higher than the inverse of EIS. This is evidenced by their preference of phased drawdown strategies to annuitisation, providing an alternative explanation to the annuity puzzle.

Suggested Citation

  • Wiafe, Osei K. & Basu, Anup K. & Chen, John, 2017. "The effects of age pension on retirement drawdown choices," Finance Research Letters, Elsevier, vol. 20(C), pages 81-87.
    • Handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:81-87
    DOI: 10.1016/j.frl.2016.09.019
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    References listed on IDEAS

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    More about this item

    Keywords

    Phased drawdown; Retirement; Annuity; Epstein-Zin utility; Pensions;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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