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Retirement spending and biological age

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  • Huang, H.
  • Milevsky, M.A.
  • Salisbury, T.S.

Abstract

We solve a lifecycle model in which the consumer’s chronological age does not move in lockstep with calendar time. Instead, biological age increases at a stochastic non-linear rate in time like a broken clock that might occasionally move backwards. In other words, biological age could actually decline. Our paper is inspired by the growing body of medical literature that has identified biomarkers which indicate how people age at different rates. This offers better estimates of expected remaining lifetime and future mortality rates. It isn’t farfetched to argue that in the not-too-distant future personal age will be more closely associated with biological vs. calendar age. Thus, after introducing our stochastic mortality model we derive optimal consumption rates in a classic (Yaari, 1965) framework adjusted to our proper clock time. In addition to the normative implications of having access to biological age, our positive objective is to partially explain the cross-sectional heterogeneity in retirement spending rates at any given chronological age. In sum, we argue that neither biological nor chronological age alone is a sufficient statistic for making economic decisions. Rather, both ages are required to behave rationally.

Suggested Citation

  • Huang, H. & Milevsky, M.A. & Salisbury, T.S., 2017. "Retirement spending and biological age," Journal of Economic Dynamics and Control, Elsevier, vol. 84(C), pages 58-76.
  • Handle: RePEc:eee:dyncon:v:84:y:2017:i:c:p:58-76
    DOI: 10.1016/j.jedc.2017.09.003
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    Cited by:

    1. Milevsky, Moshe A., 2020. "Calibrating Gompertz in reverse: What is your longevity-risk-adjusted global age?," Insurance: Mathematics and Economics, Elsevier, vol. 92(C), pages 147-161.
    2. Ye, Zihan & Post, Thomas, 2020. "What age do you feel? – Subjective age identity and economic behaviors," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 322-341.
    3. S. Kirusheva & H. Huang & T. S. Salisbury, 2022. "Retirement spending problem under Habit Formation Model," Papers 2210.06255, arXiv.org.
    4. Ye, Zihan & Zou, Xiaopeng & Post, Thomas & Mo, Weiqiao & Yang, Qianqian, 2022. "Too old to plan? Age identity and financial planning among the older population of China," China Economic Review, Elsevier, vol. 73(C).
    5. Marcel Bräutigam & Montserrat Guillén & Jens P. Nielsen, 2017. "Facing Up to Longevity with Old Actuarial Methods: A Comparison of Pooled Funds and Income Tontines," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(3), pages 406-422, July.

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