Aligning Retirement Goals and Outcomes

Aligning Retirement Goals and Outcomes


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- How should you invest your pension plan savings, if you want to reach a desired level of
income? We show the distribution of your possible retirement income under different
investment strategies.
- Each strategy is derived from the optimization of a function of:
o A Constant Relative Risk Aversion (CRRA) utility function; or
o A Loss Aversion utility function.
- The above optimal strategies are compared to a lifestyle investment strategy.
- The optimal strategy derived from the chosen loss aversion utility function gives a
distribution of retirement income that is peaked around the chosen retirement income.
- The optimal strategy derived from the CRRA function and the lifestyle strategy give an
income distribution that is more spread out.
- The conclusion is that the loss aversion-derived investment strategy is most attractive. On
the downside, it requires more effort to implement than the simple lifestyle strategy as it
requires a market model to determine the strategy.

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