@article{0a2e60aae10d4376af54c426c14f9d26,
title = "Investing for retirement: Terminal wealth constraints or a desired wealth target?",
abstract = "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.",
keywords = "asset allocation, constrained optimization, loss aversion utility, numerical dynamic programming, retirement outcomes",
author = "Catherine Donnelly and Gaurav Khemka and William Lim",
note = "Funding Information: Open access publishing facilitated by Australian National University, as part of the Wiley - Australian National University agreement via the Council of Australian University Librarians. Funding Information: The authors gratefully acknowledge the constructive comments of the Editor and the Associate Editor of European Financial Management journal along with the thorough comments of an anonymous referee. We also have benefited from comments made by Jenni Bettman, Alfred Chong, Marcos Escobar‐Anel, Mogens Steffensen and Rudi Zagst. Furthermore, we also thank seminar participants at the 22nd International Congress on Insurance: Mathematics and Economics School of Risk & Actuarial Studies, University of New South Wales, and the PhD Symposium (2018), Research School of Finance, Actuarial Studies and Statistics, College of Business and Economics, Australia National University for their comments on an earlier version of the paper. Catherine Donnelly gratefully acknowledges funding from the Institute and Faculty of Actuaries' Actuarial Research Centre, as part of the research programme {\textquoteleft}Minimising Longevity and Investment Risk while Optimising Future Pension Plans{\textquoteright}. We further thank David Wilkie for providing some of the UK financial market data. Publisher Copyright: {\textcopyright} 2022 The Authors. European Financial Management published by John Wiley & Sons Ltd.",
year = "2022",
month = nov,
doi = "10.1111/eufm.12351",
language = "English",
volume = "28",
pages = "1283--1307",
journal = "European Financial Management",
issn = "1354-7798",
publisher = "Wiley-Blackwell",
number = "5",
}