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The effects of age pension on retirement drawdown choices

Osei K. Wiafe, Anup K. Basu and John Chen

Finance Research Letters, 2017, vol. 20, issue C, 81-87

Abstract: We compare alternative drawdown strategies in retirement to a life annuity benchmark when retirees have access to government means-tested Age Pension. By adopting Epstein-Zin utility preferences which enables disentangling relative risk aversion (RRA) from elasticity of intertemporal substitution (EIS), our results suggest that retirees possess RRA levels which are higher than the inverse of EIS. This is evidenced by their preference of phased drawdown strategies to annuitisation, providing an alternative explanation to the annuity puzzle.

Keywords: Phased drawdown; Retirement; Annuity; Epstein-Zin utility; Pensions (search for similar items in EconPapers)
JEL-codes: D81 J26 G11 D14 E21 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:81-87