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Implementing individual savings decisions for retirement with bounds on wealth

Donnelly, C., Guillén, M., Nielsen, J. P. & Pérez-Marín, A. M. (2018). Implementing individual savings decisions for retirement with bounds on wealth. ASTIN Bulletin, 48(1), pp. 111-137. doi: 10.1017/asb.2017.34


We present a savings plan for retirement that removes risk by fixing a constraint on a life–long pension so that it has an upper and a lower bound. This corresponds to the ideas of Nobel laureate R.C. Merton whose implementation has never been published. We show with an illustration that our proposed practical algorithm reproduces the theoretical results after a savings period of around thirty years by using daily, monthly, weekly or yearly updates of the investment positions. We calculate the percentiles of the final accumulated wealth distribution for the adjusted implementation. In the simulated illustration we observe that the adjusted values converge to the theoretical values of the percentiles when the frequency of update increases. We conclude that monthly adjustments result in a practical way to implement theoretical results that were obtained under the hypothesis of a continuous process by Donnelly et al. (2015). This method is easy to use in practice by pension savers and fund managers.

Publication Type: Article
Additional Information: This article has been accepted for publication in a revised form in ASTIN Bulletin This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © Astin Bulletin 2018.
Departments: Bayes Business School > Actuarial Science & Insurance
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