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Life-Cycle Finance and the Design of Pension Plans

Author

Listed:
  • Zvi Bodie
  • Jérôme Detemple
  • Marcel Rindisbacher

    () (School of Management, Boston University, Boston, Massachusetts 02215)

Abstract

This article reviews recent scientific literature on consumer financial decisions over the life cycle, outlining its implications for the design of pension plans. It begins with a review of advances in the theory of rational financial planning and wealth management. It then summarizes the recent empirical literature on the actual behavior of households regarding saving, investing, and insuring their consumption in old age. Finally, it briefly comments on the practical implications of the theory for the design of pension systems and outlines areas of future research.

Suggested Citation

  • Zvi Bodie & Jérôme Detemple & Marcel Rindisbacher, 2009. "Life-Cycle Finance and the Design of Pension Plans," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 249-286, November.
    • Handle: RePEc:anr:refeco:v:1:y:2009:p:249-286
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    Cited by:

    1. Kees de Van & Daniele Fano & Herialt Mens & Giovanna Nicodano, 2014. "A Reporting Standard for Defined Contribution Pension Plans," CeRP Working Papers 143, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    2. Butt, Adam & Donald, M. Scott & Foster, F. Douglas & Thorp, Susan & Warren, Geoffrey J., 2018. "One size fits all? Tailoring retirement plan defaults," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 546-566.
    3. Yaniv Azoulay & Andrey Kudryavtsev & Shosh Shahrabani, 2016. "Accumulating approach to the life-cycle pension model: practical advantages," Financial Theory and Practice, Institute of Public Finance, vol. 40(4), pages 413-436.
    4. Jingjing Chai & Wolfram Horneff & Raimond Maurer & Olivia S. Mitchell, 2011. "Optimal Portfolio Choice over the Life Cycle with Flexible Work, Endogenous Retirement, and Lifetime Payouts," Review of Finance, European Finance Association, vol. 15(4), pages 875-907.
    5. Weidong Tian & Zimu Zhu, 2020. "Optimal Investing after Retirement Under Time-Varying Risk Capacity Constraint," Papers 2005.13741, arXiv.org, revised Jun 2020.
    6. Michael P. Keane & Susan Thorp, 2016. "Complex Decision Making: The Roles of Cognitive Limitations, Cognitive Decline and Ageing," Economics Papers 2016-W10, Economics Group, Nuffield College, University of Oxford.
    7. Illeditsch, PK & Ganguli, J & Condie, S, 2015. "Information Inertia," Economics Discussion Papers 15615, University of Essex, Department of Economics.
    8. repec:esx:essedp:719 is not listed on IDEAS
    9. Magnus Dahlquist & Ofer Setty & Roine Vestman, 2018. "On the Asset Allocation of a Default Pension Fund," Journal of Finance, American Finance Association, vol. 73(4), pages 1893-1936, August.
    10. Shin S. Ikeda, 2013. "A Contingent Claim Analysis of Suicide," GRIPS Discussion Papers 13-05, National Graduate Institute for Policy Studies.
    11. repec:dau:papers:123456789/7874 is not listed on IDEAS
    12. Hubar, Sylwia & Koulovatianos, Christos & Li, Jian, 2020. "The role of labor-income risk in household risk-taking," European Economic Review, Elsevier, vol. 129(C).
    13. Richard Hinz & Heinz P. Rudolph & Pablo Antolin & Juan Yermo, 2010. "Evaluating the Financial Performance of Pension Funds," World Bank Publications, The World Bank, number 2405, June.
    14. Keane, M.P. & Thorp, S., 2016. "Complex Decision Making," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.),Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 661-709, Elsevier.
    15. Wei-Ting Pan, 2016. "The Impact of Mandatory Savings on Life Cycle Consumption and Portfolio Choice," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 32, July-Dece.
    16. Ganguli, J & Condie, S & Illeditsch, PK, 2012. "Information Inertia," Economics Discussion Papers 5628, University of Essex, Department of Economics.
    17. Marie Brière & Zvi Bodie, 2014. "Sovereign Wealth and Risk Management: A Framework for Optimal Asset Allocation of Sovereign Wealth," Post-Print hal-01492603, HAL.
    18. Andrey Kudryavtsev & Shosh Shahrabani & Yaniv Azoulay, 2017. "Frequency of Adjusting Asset Allocations in the Life-Cycle Pension Model: When Doing More Is Not Necessarily Better," Bulletin of Applied Economics, Risk Market Journals, vol. 4(1), pages 13-33.

    More about this item

    Keywords

    consumption; savings; labor; investments; retirement planning;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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