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Retirement saving with contribution payments and labor income as a benchmark for investments

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Author Info
A.B. Berkelaar ()
R. Kouwenberg () (FEW-Econometrie en besliskunde)

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Abstract

In 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.

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Paper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number 181.

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Date of creation: 1999
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Handle: RePEc:dgr:eureir:1999181

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Related research
Keywords: retirement saving optimal asset allocation discrete-time finance dynamic programming;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions

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References listed on IDEAS
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.:
  1. Campbell, John Y, 1993. "Intertemporal Asset Pricing without Consumption Data," American Economic Review, American Economic Association, vol. 83(3), pages 487-512, June. [Downloadable!] (restricted)
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. Sethi, Suresh P. & Taksar, Michael, 1988. "A note on Merton's "Optimum Consumption and Portfolio Rules in a continuous-Time Model"," Journal of Economic Theory, Elsevier, vol. 46(2), pages 395-401, December. [Downloadable!] (restricted)
  4. Michael W. Brandt, 1999. "Estimating Portfolio and Consumption Choice: A Conditional Euler Equations Approach," Journal of Finance, American Finance Association, vol. 54(5), pages 1609-1645, October. [Downloadable!] (restricted)
  5. John Y. Campbell & Luis M. Viceira, 1999. "Consumption And Portfolio Decisions When Expected Returns Are Time Varying," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 433-495, May. [Downloadable!] (restricted)
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  6. Balduzzi, Pierluigi & Lynch, Anthony W., 1999. "Transaction costs and predictability: some utility cost calculations," Journal of Financial Economics, Elsevier, vol. 52(1), pages 47-78, April. [Downloadable!] (restricted)
  7. Hakansson, Nils H, 1970. "Optimal Investment and Consumption Strategies Under Risk for a Class of Utility Functions," Econometrica, Econometric Society, vol. 38(5), pages 587-607, September. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Anthony W. Lynch & Pierluigi Balduzzi, 1998. "Predictability and Transaction Costs: The Impact on Rebalancing Rules and Behavior," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-049, New York University, Leonard N. Stern School of Business-.
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  10. Duffie, Darrell & Fleming, Wendell & Soner, H. Mete & Zariphopoulou, Thaleia, 1997. "Hedging in incomplete markets with HARA utility," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 753-782, May. [Downloadable!] (restricted)
  11. John Y. Campbell & Luis M. Viceira, 1998. "Who Should Buy Long-Term Bonds?," NBER Working Papers 6801, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Luis M. Viceira, 1999. "Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income," NBER Working Papers 7409, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. John Y. Campbell & Joao Cocco & Francisco Gomes & Pascal Maenhout & Luis M. Viceira, 1999. "Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor," Computing in Economics and Finance 1999 1344, Society for Computational Economics.
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  14. 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. [Downloadable!] (restricted)
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  15. Kouwenberg, Roy, 2001. "Scenario generation and stochastic programming models for asset liability management," European Journal of Operational Research, Elsevier, vol. 134(2), pages 279-292, October. [Downloadable!] (restricted)
  16. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. 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. [Downloadable!] (restricted)
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