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Glide paths for a retirement plan with deferred annuities

Published online by Cambridge University Press:  31 August 2021

Chul Jang Open the ORCID record for Chul Jang [Opens in a new window] ,
Andrew Clare  and
Iqbal Owadally
Chul Jang
Affiliation:
City, University of London, London, UK Hanyang University, Ansan, South Korea
Andrew Clare*
Affiliation:
City, University of London, London, UK
Iqbal Owadally
Affiliation:
City, University of London, London, UK
*
*Corresponding author. Email: [email protected]
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Abstract

We construct investment glide paths for a retirement plan using both traditional asset classes and deferred annuities (DAs). The glide paths are approximated by averaging the asset proportions of stochastic optimal investment solutions. The objective function consists of power utility in terms of secured retirement income from purchased DAs, as well as a bequest that can be withdrawn before retirement. Compared with conventional glide paths and investment strategies, our DA-enhanced glide paths provide the investor with higher welfare gains, more efficient investment portfolios and more responsive retirement income patterns and bequest levels to different fee structures and personal preferences.

Keywords

Deferred annuityglide-path strategymulti-stage stochastic programmingretirement planningC61G11G52J32
Type
Article
Information
Journal of Pension Economics & Finance , Volume 21 , Issue 4 , October 2022 , pp. 565 - 581
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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