A Savings Plan with Targeted Contributions

26 Pages Posted: 18 Dec 2013

See all articles by Iqbal Owadally

Iqbal Owadally

City University London

Steven Haberman

City University London - Faculty of Actuarial Science

Denise Gómez Hernández

Universidad Autónoma de Querétaro (UAQ)

Date Written: December 2013

Abstract

We consider a simple savings problem where contributions are made to a fund and invested to meet a future liability. The conventional approach is to estimate future investment return and calculate a fixed contribution to be paid regularly by the saver. We propose a flexible plan where contributions are systematically adjusted and targeted. We show by means of stochastic simulations that this plan has a reduced risk of a shortfall and is relatively insensitive to errors in the planner's estimate of future returns. Sensitivity analyses in terms of parameter values, stochastic return models and investment horizons are also performed.

Suggested Citation

Owadally, Iqbal and Haberman, Steven and Gomez Hernandez, Denise, A Savings Plan with Targeted Contributions (December 2013). Journal of Risk and Insurance, Vol. 80, Issue 4, pp. 975-1000, 2013. Available at SSRN: https://ssrn.com/abstract=2369099 or http://dx.doi.org/10.1111/j.1539-6975.2012.01485.x

Iqbal Owadally (Contact Author)

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Steven Haberman

City University London - Faculty of Actuarial Science ( email )

London
United Kingdom

Denise Gomez Hernandez

Universidad Autónoma de Querétaro (UAQ) ( email )

Cerro de las Campanas S/N, Las Campanas
Queretaro, 76010
Mexico

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