Download this Paper Open PDF in Browser

The Design and Production of New Retirement Savings Products

Harvard Business School Working Paper No. 98-070

18 Pages Posted: 1 Apr 1998  

Zvi Bodie

Boston University - Department of Finance & Economics

Dwight B. Crane

Harvard Business School - Finance Unit

Date Written: January 28, 1998

Abstract

As pension plans in the U.S. and other countries shift from defined benefit to defined contribution plans, employees are being asked to bear investment risk formerly borne by employers and/or governments. Using a simulation model, this paper examines the performance of alternative investment strategies and products over the working life of a hypothetical employee. The results illustrate the uncertainty inherent in standard investment products and suggest the need for new products that would help employees manage investment risk. The paper explores the performance of investment products that provide a floor on the value of the worker's investment over some period of time, say five years, and also provide some share of the upside of the equity market. These products appear to work well; for example, workers who invest their annual retirement contributions in a series of five-year insured products appear to have a higher chance of achieving their retirement income target than if they were to invest the same amount in the S&P 500 index.

JEL Classification: G1, G12, G14

Suggested Citation

Bodie, Zvi and Crane, Dwight B., The Design and Production of New Retirement Savings Products (January 28, 1998). Harvard Business School Working Paper No. 98-070. Available at SSRN: https://ssrn.com/abstract=72608 or http://dx.doi.org/10.2139/ssrn.72608

Zvi Bodie

Boston University - Department of Finance & Economics ( email )

United States

HOME PAGE: http://www.zvibodie.com

Dwight B. Crane (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6679 (Phone)
617-495-8103 (Fax)

Paper statistics

Downloads
1,598
Rank
8,345
Abstract Views
5,770