The effect of longevity drift and investment volatility on income sufficiency in retirement

Les Mayhew, David Smith and Douglas Wright

Insurance: Mathematics and Economics, 2018, vol. 78, issue C, 201-211

Abstract: In 2014 the Government announced radical proposals which now allow people to withdraw money from their pension pot from age 55, ‘how they want, subject to their marginal rate of income tax in that year’. The main effect of this change will be to put more onus on the individual to make sure they have sufficient resources to last for their retirement, but it also removes the obligation to annuitise their funds at any future age. This paper is concerned with how people can best use their pension pots by aligning them to their personal financial objectives and longevity risks. It finds that for most people annuitising is not the best option, except for a few circumstances, and that draw down is preferable, especially where there is a bequest motive and the individual has assets such as property to fall back on. These options are low risk if simple rules are followed but they are not a substitute for professional advice and should only be used in conjunction.

Keywords: Pensions; Longevity drift; Annuitisation; Drawdown; Investment volatility (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167668717304456
Full text for ScienceDirect subscribers only

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:eee:insuma:v:78:y:2018:i:c:p:201-211

DOI: 10.1016/j.insmatheco.2017.09.013

Access Statistics for this article

Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

More articles in Insurance: Mathematics and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().