Novel Utility-based Life Cycle Models to Optimise Income in Retirement in the Presence of Heterogeneous Preferences

Bonsoo Koo (), Athanasios Pantelous () and Yunxiao Wang ()

No 21/20, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: The global shift towards defined-contribution pension schemes has been accompanied by asymmetric risks and new responsibilities for households to plan and fund effectively their own retirement over the years. In this study, expressing and combining preferences for consumption, investment, bequest, public pension entitlement and the choice of reverse mortgage products, we develop several utilitybased life cycle models to facilitate the complex decision-making process that retired households are required to follow to optimise their retirement income. This optimal policy is given in the form of either an analytical or a numerical solution using stochastic dynamic programming. The timing of this paper coincides with the launch of a reverse mortgage style loan, offered by the Australian federal government and allowing retired households to receive an income stream by taking out a loan against the equity in their home. Calibration is performed using real Australian household data.

Keywords: risk management; stochastic optimal control; life cycle models; retirement income; reverse mortgage; defined contribution (search for similar items in EconPapers)
Pages: 76
Date: 2020
New Economics Papers: this item is included in nep-age, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.monash.edu/business/ebs/research/publications/ebs/wp21-2020.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:msh:ebswps:2020-21

Ordering information: This working paper can be ordered from
http://business.mona ... -business-statistics

Access Statistics for this paper

More papers in Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics PO Box 11E, Monash University, Victoria 3800, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Professor Xibin Zhang ().