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 viewof a plan sponsor, who makes contribution payments for the future retirementof an employee. The plan sponsor considers the employee's labor income asinvestment-benchmark in order to ensure the continuation of consumptionhabits after retirement. We demonstrate that the demand for risky assetsincreases at low wealth levels due to the contribution payments. We quantifythe demand for hedging against changes in wage growth and find that it isrelatively small. We show that downside-risk measures increase risk-takingat both low and high levels of wealth.
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Bibliographic InfoPaper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 9946/A.
Date of creation: 17 Jul 2003
Date of revision:
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Web page: http://www.few.eur.nl/few
Dynamic programming; Optimal asset allocation; Retirement saving; Discrete-time finance;
Other versions of this item:
- 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.
- Berkelaar, A.B. & Kouwenberg, R.R.P., 1999. "Retirement saving with contribution payments and labor income as a benchmark for investments," Econometric Institute Report EI 9946-/A Revision_Date:, Erasmus University Rotterdam, Econometric Institute.
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