Lifetime investment and consumption using a defined-contribution pension scheme

Paul Emms

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 9, 1303-1321

Abstract: During the accumulation phase of a defined-contribution pension scheme, a scheme member invests part of their stochastic income in a portfolio of a stock and a bond in order to build up sufficient funds for retirement. It is assumed that the remainder of their salary pre-retirement is consumed, an annuity is purchased at retirement, and the stock allocation and consumption pre-retirement maximise the total expected lifetime consumption using a CARA utility function. Perfect correlation between the scheme member's income and the stock price leads to analytical expressions for the controls for a general income model. If the correlation is imperfect then analytical controls are found for two particular stochastic income models.

Keywords: Defined-contribution pension; Lifecycle model; Stochastic income; Replacement ratio (search for similar items in EconPapers)
JEL-codes: C61 D31 D52 D91 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:9:p:1303-1321

DOI: 10.1016/j.jedc.2012.01.012

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