Investing for retirement: Terminal wealth constraints or a desired wealth target?

Catherine Donnelly, Gaurav Khemka, William Lim*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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We investigate how well different investment strategies can give pre-retirees more certainty about their income in retirement, whilst allowing them to benefit from taking investment risk. Under an expected utility-maximizing framework, we find that a loss aversion utility function gives a high degree of certainty about its desired wealth target and is robust to different market models. Imposing terminal wealth constraints does not improve the certainty of achieving the desired target enough to counterbalance the increased chance of obtaining a lower income. The power utility function is not robust to different market models and becomes too risk-averse with wealth constraints.

Original languageEnglish
Pages (from-to)1283-1307
Number of pages25
JournalEuropean Financial Management
Issue number5
Early online date20 Jan 2022
Publication statusPublished - Nov 2022


  • asset allocation
  • constrained optimization
  • loss aversion utility
  • numerical dynamic programming
  • retirement outcomes

ASJC Scopus subject areas

  • Accounting
  • Economics, Econometrics and Finance(all)


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