Optimal Retirement Planning with a Focus on Single and Joint Life Annuities

Quantitative Finance, 16:2, 275-295, 2016

31 Pages Posted: 19 Apr 2014 Last revised: 4 Feb 2016

See all articles by Agnieszka K. Konicz Bell

Agnieszka K. Konicz Bell

Independent

David Pisinger

Technical University of Denmark - Management Engineering

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: April 18, 2014

Abstract

We optimize the asset allocation, consumption and bequest decisions of an investor with uncertain lifetime and under time-varying investment opportunities. The asset menu is given by stocks, zero coupon bonds and pure endowments with different maturities. The latter are contingent on either a single or a joint life, and pay fixed or variable benefits. We further include transaction costs on stocks and bonds, and surrender charges on pure endowments. We show that despite high surrender charges, annuities are the primary asset class in a portfolio, and that annuity income is never fully consumed, but used for rebalancing purposes. We argue that the optimal retirement product for a household is much more complex than any of those available in the market. Every household should be offered an annuity tailored to its needs, using a unique combination of assets and mortality protection levels.

Keywords: annuities, household, stochastic programming

JEL Classification: C61, D91,G11, J26

Suggested Citation

Konicz Bell, Agnieszka K. and Pisinger, David and Weissensteiner, Alex, Optimal Retirement Planning with a Focus on Single and Joint Life Annuities (April 18, 2014). Quantitative Finance, 16:2, 275-295, 2016. Available at SSRN: https://ssrn.com/abstract=2426544 or http://dx.doi.org/10.2139/ssrn.2426544

Agnieszka K. Konicz Bell (Contact Author)

Independent ( email )

No Address Available

David Pisinger

Technical University of Denmark - Management Engineering ( email )

Produktionstorvet 424
room 043
Kgs. Lyngby, 2800
Denmark

Alex Weissensteiner

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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