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Life Cycle Asset Allocation With Annuity Markets
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Book Synopsis Life-Cycle Asset Allocation with Annuity Markets by : Wolfram J. Horneff
Download or read book Life-Cycle Asset Allocation with Annuity Markets written by Wolfram J. Horneff and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive the optimal portfolio choice over the life-cycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to incomplete annuity markets offering a hedge against mortality risk. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life, to earn the equity premium, and to ensure estate for the heirs. Furthermore, we assess the importance of common explanations for limited participation in annuity markets.
Book Synopsis Life-Cycle Asset Allocation with Annuity Markets by : Wolfram J. Horneff
Download or read book Life-Cycle Asset Allocation with Annuity Markets written by Wolfram J. Horneff and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive the optimal portfolio choice over the life-cycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to incomplete annuity markets offering a hedge against mortality risk. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life, to earn the equity premium, and to ensure estate for the heirs. Furthermore, we assess the importance of common explanations for limited participation in annuity markets.
Book Synopsis Dynamic Asset Allocation Over the Life-cycle and the Role of Incomplete Annuity Markets by : Michael Zisis Stamos
Download or read book Dynamic Asset Allocation Over the Life-cycle and the Role of Incomplete Annuity Markets written by Michael Zisis Stamos and published by . This book was released on 2007 with total page 141 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Lifecycle Investing written by Ian Ayres and published by ReadHowYouWant.com. This book was released on 2010-05 with total page 358 pages. Available in PDF, EPUB and Kindle. Book excerpt: Diversification provides a well-known way of getting something close to a free lunch: by spreading money across different kinds of investments, investors can earn the same return with lower risk (or a much higher return for the same amount of risk). This strategy, introduced nearly fifty years ago, led to such strategies as index funds. What if we were all missing out on another free lunch that’s right under our noses? InLifecycle Investing, Barry Nalebuff and Ian Ayres-two of the most innovative thinkers in business, law, and economics-have developed tools that will allow nearly any investor to diversify their portfolios over time. By using leveraging when young-a controversial idea that sparked hate mail when the authors first floated it in the pages ofForbes-investors of all stripes, from those just starting to plan to those getting ready to retire, can substantially reduce overall risk while improving their returns. InLifecycle Investing, readers will learn How to figure out the level of exposure and leverage that’s right foryou How the Lifecycle Investing strategy would have performed in the historical market Why it will work even if everyone does it Whennotto adopt the Lifecycle Investing strategy Clearly written and backed by rigorous research,Lifecycle Investingpresents a simple but radical idea that will shake up how we think about retirement investing even as it provides a healthier nest egg in a nicely feathered nest.
Book Synopsis Longevity Risk and Retirement Income Planning by : Patrick J. Collins
Download or read book Longevity Risk and Retirement Income Planning written by Patrick J. Collins and published by CFA Institute Research Foundation. This book was released on 2015-12-28 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt: The past 50 years have seen an abundance of research on retirement planning and longevity risk. Reviewed here is the academic side of the research and its varied viewpoints and nuances. The evolution of retirement risk models, retirement portfolio problems and solutions, and annuities are some of the many topics covered.
Book Synopsis The Role of Annuity Markets in Financing Retirement by : Jeffrey R. Brown
Download or read book The Role of Annuity Markets in Financing Retirement written by Jeffrey R. Brown and published by MIT Press. This book was released on 2001-11-09 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt: Annuity insurance products help protect retirees against outliving their incomes. Dramatic advances in life expectancy mean that today's retirees must plan on living into their eighties, their nineties, and even beyond. Longer life expectancies are the symbol of a prosperous society, but this progress also means that some retirees will need to plan conservatively and cut back substantially on their living standards or risk living so long that they exhaust their resources. This book examines the role that life annuities can play in helping people protect themselves against such outcomes. A life annuity is an insurance product that pays out a periodic amount for as long as the annuitant is alive, in exchange for a premium. The book begins with a history of life annuity markets during the twentieth century in the United States and elsewhere. It then explores recent trends in annuity pricing and money's worth, as well as the economic value generated for purchasers of these products. The book explains the potential importance of inflation-protected annuities and stock-market-linked variable annuities in providing more complete retirement security. The concluding chapters examine life annuities in various institutional settings and the tax treatment of annuity products.
Book Synopsis Consumption Over the Life Cycle by : Gary D. Hansen
Download or read book Consumption Over the Life Cycle written by Gary D. Hansen and published by . This book was released on 2006 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: "We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete. Empirical studies find that consumption tends to rise early in life, peak around age 45-55, and to decline after that. Our calibrated model exhibits life cycle consumption that is consistent with this pattern. This follows from the fact that, due to a lack of annuity markets, households discount the future more heavily as they age and their probability of survival falls. Once an unfunded social security system is introduced, the profile is still hump shaped, but the decline in consumption does not begin until after retirement in our base case. Adding a bequest motive causes this decline to begin at a younger age"--National Bureau of Economic Research web site.
Book Synopsis Investment Strategies For Retirement by : Frank Nicolas
Download or read book Investment Strategies For Retirement written by Frank Nicolas and published by World Scientific. This book was released on 2019-01-02 with total page 416 pages. Available in PDF, EPUB and Kindle. Book excerpt: The issue of pension financing is evolving everywhere, becoming more of a corporate or individual matter rather than a state one. Demographic changes are making sharing mechanisms hard to control, and social deficits often lead governments to pull back from their obligations. This raises many questions for the individual:Despite the burden for securing one's retirement increasingly placed on individuals, many are often badly prepared to tackle this very long savings process, which is often complicated by the specific characteristics of a pension plan.This publication, intended for investment professionals, customer advisors, and individuals interested in personal finance and asset management, looks at some of the fundamental elements of investment strategies and techniques for retirement.
Book Synopsis Deferred Annuities and Strategic Asset Allocation by : Wolfram J. Horneff
Download or read book Deferred Annuities and Strategic Asset Allocation written by Wolfram J. Horneff and published by . This book was released on 2008 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive the optimal portfolio choice and consumption pattern over the lifecycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to deferred annuities. Deferred annuities offer a hedge against mortality risk and provide similar benefits as Social Security. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life and to earn the equity premium. We find a marginal difference between a strategy involving deferred annuities and one where the investor can purchase immediate life annuities.
Book Synopsis Portfolio Choice With Puts by : Moshe A. Milevsky
Download or read book Portfolio Choice With Puts written by Moshe A. Milevsky and published by . This book was released on 2008 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we investigate the actual portfolio choice and asset allocation behavior of individuals who acquire insurance in the form of an out - of - the - money long dated put option on their investment funds. We compare their allocations against those who do not elect and pay for this type of protection; dubbed a longevity put. Using a unique database of nearly a million variable annuity (VA) policyholders collected by seven different insurance companies, we find that these investors take on 5% to 30% additional risky/equity exposure when the longevity put option is selected. And, when this longevity put option is not purchased - so the investment portfolio resembles a conventional mutual fund - we confirm the classical life-cycle age phased reduction in equity.We offer a rudimentary model of utility - maximizing behavior in the presence of this longevity put that indeed justifies the increased allocation to risk, provided the investor is willing, able and understands to exercise the annuity option if - and - when it matures in the money. This, of course, is debatable given the long standing body of evidence - first documented by Modigliani(1986) - that individuals intensely dislike annuitization despite its welfare enhancing properties.Regardless, we believe our paper is the first to examine actual asset allocations within variable annuity policies, which is currently a $1.5 trillion dollar market in the U.S. and is expected to grow as aging baby boomers take control of their own retirement assets.
Book Synopsis Consumption and Portfolio Optimisation at the End of the Life-Cycle by : David Schiess
Download or read book Consumption and Portfolio Optimisation at the End of the Life-Cycle written by David Schiess and published by Sudwestdeutscher Verlag Fur Hochschulschriften AG. This book was released on 2009 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis' focus is on the consumption/portfolio optimisation and the optimal annuitisation decision of a pensioner in a continuous time setting. Technically, this involves solving a combined optimal stopping and optimal control problem (COSOCP). The retiree faces the crucial question of how much to consume and how much to invest in the risky asset (financial market risk). This creates the optimal control aspect of the COSOCP. The second source of uncertainty is the pensioner's longevity risk, which is why we include an annuity market. The pensioner has to find the optimal time to annuitise his wealth. This constitutes the optimal stopping aspect of the COSOCP. The task of finding the pensioner's optimal consumption, asset allocation and annuity decision rule leads to the interesting interplay of optimal control theory, optimal stopping theory and finally, mortality and bequest issues.
Book Synopsis Extending Life Cycle Models of Optimal Portfolio Choice by :
Download or read book Extending Life Cycle Models of Optimal Portfolio Choice written by and published by . This book was released on 2009 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives optimal life cycle portfolio asset allocations as well as annuity purchases trajectories for a consumer who can select her hours of work and also her retirement age. Using a realistically-calibrated model with stochastic mortality and uncertain labor income, we extend the investment universe to include not only stocks and bonds, but also survival-contingent payout annuities. We show that making labor supply endogenous raises older peoples' equity share; substantially increases work effort by the young; and markedly enhances lifetime welfare. Also, introducing annuities leads to earlier retirement and higher participation by the elderly in financial markets. Finally, if we allow for an age-dependent leisure preference parameter, this fits well with observed evidence in that it generates lower work hours and smaller equity holdings at older ages as well as sensible retirement age patterns.
Book Synopsis Asset Market Participation and Portfolio Choice Over the Life Cycle by : Andreas Fagereng
Download or read book Asset Market Participation and Portfolio Choice Over the Life Cycle written by Andreas Fagereng and published by . This book was released on 2013 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the life cycle of portfolio allocation following for 15 years a large random sample of Norwegian households using error-free data on all components of households' investments drawn from the Tax Registry. Both, participation in the stock market and the portfolio share in stocks, have important life cycle patterns. Participation is limited at all ages but follows a hump-shaped profile which peaks around retirement; the share invested in stocks among the participants is high and flat for the young but investors start reducing it as retirement comes into sight. Our data suggest a double adjustment as people age: a rebalancing of the portfolio away from stocks as they approach retirement, and stock market exit after retirement. Existing calibrated life cycle models can account for the first behavior but not the second. We show that incorporating in these models a reasonable per period participation cost can generate limited participation among the young but not enough exit from the stock market among the elderly. Adding also a small probability of a large loss when investing in stocks, produces a joint pattern of participation and of the risky asset share that is similar to the one observed in the data. A structural estimation of the relevant parameters of the model reveals that the parameter combination that fits the data best is one with a relatively large risk aversion, small participation cost and a yearly large loss probability of around 1.3 percent.
Book Synopsis Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection by : Vanya Horneff
Download or read book Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection written by Vanya Horneff and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We evaluate lifecycle consumption and portfolio allocation patterns resulting from access to Guaranteed Minimum Withdrawal Benefit (GMWB) variable annuities, one of the most rapidly-growing financial innovations over the last two decades. A key feature of these products is that they offer access to equity investments with downside protection, hedging of longevity risk, and partially-refundable premiums. Welfare rises since policyholders exercise the product's flexibility by taking withdrawals and dynamically adjusting their portfolios and consumption streams. Consistent with observed behavior, differences across individuals' cash out and annuitization patterns result from variations in realized equity market returns and labor income trajectories.
Book Synopsis Lifecycle Portfolio Choice with Systematic Longevity Risk and Variable Investment-Linked Deferred Annuities by : Vasily Kartashov
Download or read book Lifecycle Portfolio Choice with Systematic Longevity Risk and Variable Investment-Linked Deferred Annuities written by Vasily Kartashov and published by . This book was released on 2011 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the impact of variable investment-linked deferred annuities (VILDAs) on lifecycle consumption, saving, and portfolio allocation patterns given stochastic and systematic mortality. Insurers have taken two approaches to manage systematic mortality risks, namely self-insurance and risk transfer to purchasers of the annuity products. We demonstrate that self-insurance leads to high loadings, so that households offered a choice would favor the risk transfer scheme. Reservation loadings on the actuarially fair VILDA price for non-participation are 0.5-8%; if insurers cannot hedge within this range, they will transfer systematic longevity risks to the annuitants. Our findings have implications for new payout products that may be attractive to older households seeking to protect against retirement shortfalls.
Book Synopsis Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection by : Vanya Horneff
Download or read book Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection written by Vanya Horneff and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We evaluate lifecycle consumption and portfolio allocation patterns resulting from access to Guaranteed Minimum Withdrawal Benefit (GMWB) variable annuities, one of the most rapidly-growing financial innovations over the last two decades. A key feature of these products is that they offer access to equity investments with downside protection, hedging of longevity risk, and partially-refundable premiums. Welfare rises since policyholders exercise the product's flexibility by taking withdrawals and dynamically adjusting their portfolios and consumption streams. Consistent with observed behavior, differences across individuals' cash out and annuitization patterns result from variations in realized equity market returns and labor income trajectories.
Book Synopsis The Calculus of Retirement Income by : Moshe A. Milevsky
Download or read book The Calculus of Retirement Income written by Moshe A. Milevsky and published by Cambridge University Press. This book was released on 2006-03-13 with total page 301 pages. Available in PDF, EPUB and Kindle. Book excerpt: This 2006 book introduces and develops the basic actuarial models and underlying pricing of life-contingent pension annuities and life insurance from a unique financial perspective. The ideas and techniques are then applied to the real-world problem of generating sustainable retirement income towards the end of the human life-cycle. The role of lifetime income, longevity insurance, and systematic withdrawal plans are investigated in a parsimonious framework. The underlying technology and terminology of the book are based on continuous-time financial economics by merging analytic laws of mortality with the dynamics of equity markets and interest rates. Nonetheless, the book requires a minimal background in mathematics and emphasizes applications and examples more than proofs and theorems. It can serve as an ideal textbook for an applied course on wealth management and retirement planning in addition to being a reference for quantitatively-inclined financial planners.
