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Choices and Constraints over Retirement Income Streams: Comparing Rules and Regulations

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The new Simplified Superannuation regulations for Australian superannuation provide tax concessions to retirement income streams which comply with legislated minimum drawdown rules. We evaluate these new drawdown rules against four alternatives, including three formula-based ‘rules of thumb’ and the previous legislated minimum drawdown limits for allocated pensions. We find that the new regulations are a substantial improvement on the previous rules for allocated pensions and, when compared with the four formula-based rules, are a good compromise in terms of simplicity, adequacy and risk. We also find that welfare is lower for most individuals who follow the Simplified Superannuation compared with welfare under an optimal path or a simple fixed percentage drawdown rule, but that outcomes could be improved through a further simplification of the rules.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp200.pdf
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Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 200.

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Length: 39
Date of creation: 01 Aug 2007
Date of revision:
Handle: RePEc:uts:rpaper:200

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  1. Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December.
  2. Olivia S Mitchell & John Piggott & Michael Sherris & Shaun Yow, 2006. "Financial Innovation for an Ageing World," RBA Annual Conference Volume, in: Christopher Kent & Anna Park & Daniel Rees (ed.), Demography and Financial Markets Reserve Bank of Australia.
  3. Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2003. "Annuities and Individual Welfare," NBER Working Papers 9714, National Bureau of Economic Research, Inc.
  4. David Blake & Andrew J. G. Cairns & Kevin Dowd, 2003. "Pensionmetrics 2: stochastic pension plan design during the distribution phase," LSE Research Online Documents on Economics 24830, London School of Economics and Political Science, LSE Library.
  5. Geoffrey Kingston & Susan Thorp, 2004. "Annuitization and Asset Allocation with HARA Utlity," Econometric Society 2004 Australasian Meetings 248, Econometric Society.
  6. Jeffrey R. Brown, 1999. "Private Pensions, Mortality Risk, and the Decision to Annuitize," NBER Working Papers 7191, National Bureau of Economic Research, Inc.
  7. Suzanne Doyle & Olivia S. Mitchell & John Piggott, 2004. "Annuity Values in Defined Contribution Retirement Systems: Australia and Singapore Compared," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(4), pages 402-416, December.
  8. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942, Octomber.
  9. Bateman,Hazel & Kingston,Geoffrey & Piggott,John, 2001. "Forced Saving," Cambridge Books, Cambridge University Press, number 9780521484718, October.
    • Bateman,Hazel & Kingston,Geoffrey & Piggott,John, 2001. "Forced Saving," Cambridge Books, Cambridge University Press, number 9780521481625, October.
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Cited by:
  1. Susan Thorp & Hardy Hulley & Rebecca McKibbin & Andreas Pedersen, 2009. "Means-Tested Income Support, Portfolio Choice and Decumulation in Retirement," Research Paper Series 248, Quantitative Finance Research Centre, University of Technology, Sydney.
  2. Konstantin Petrichev & Susan Thorp, 2007. "The Private Value of Public Pensions," Research Paper Series 211, Quantitative Finance Research Centre, University of Technology, Sydney.
  3. Hardy Hulley & Rebecca Mckibbin & Andreas Pedersen & Susan Thorp, 2013. "Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement," The Economic Record, The Economic Society of Australia, vol. 89(284), pages 31-51, 03.

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