Age-dependent investing: Optimal funding and investment strategies in defined contribution pension plans when members are rational life cycle financial planners

David Blake, Douglas Wright and Yumeng Zhang

Journal of Economic Dynamics and Control, 2014, vol. 38, issue C, 105-124

Abstract: A defined contribution pension plan allows consumption to be redistributed from the plan member's working life to retirement in a manner that is consistent with the member's personal preferences. The plan's optimal funding and investment strategies therefore depend on the desired profile of consumption over the lifetime of the member. We investigate these strategies under the assumption that the member is a rational life cycle financial planner and has an Epstein–Zin utility function, which allows a separation between risk aversion and the elasticity of intertemporal substitution. We also take into account the member's human capital during the accumulation phase of the plan and we allow the annuitisation decision to be endogenously determined during the decumulation phase.

Keywords: Defined contribution pension plan; Funding strategy; Investment strategy; Epstein–Zin utility; Stochastic lifestyling; Phased annuitisation; Dynamic programming (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Working Paper: Age dependent investing: Optimal funding and investment strategies in defined contribution pension plans when members are rational life cycle financial planners (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:38:y:2014:i:c:p:105-124

DOI: 10.1016/j.jedc.2013.11.001

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