Optimizing the Aging, Retirement, and Pensions Dilemma

by Marida Bertocchi; Sandra L. Schwartz; William T. Ziemba (University of British Columbia)

• ISBN13: 9780470585696
• ISBN10: 0470585692
• Format: eBook
• Copyright: 2010-01-01
• Publisher: Wiley

Summary

A straightforward guide focused on life cycle investing-namely aging, retirement, and pensionsLife cycle investing and the implications of aging, retirement, and pensions continues to grow in importance. With people living longer, the relative and absolute number of retirees is growing while the number of workers contributing to pension funds is declining.This reliable resource develops a detailed economic analysis-at the micro (individual) and macro (economy wide) levels-which addresses issues regarding the economics of an aging population. Topics touched upon include retirement and the associated health care funding of the aged as well as social security and the asset classes that are considered asset-liability choices over time. The probability of achieving adequate return patterns from various investment strategies and asset classes is reviewed Shares rich insights on the aging, retirement, and pensions dilemma An assessment of the resources the real economy will be able to commit to non-workers is providedThe three pillars of retirement are social security, company pensions, and private savings. Each of these pillars is confronted with a variety of asset-liability problems, and this book will addresses them.

Table of Contents

Acknowledgments

Preface

The Aging Population: Issues for Retirement

Issues in Retirement

Longevity and Changing Demographics across the World

The Evolution of Retirement

Provision for Retirement

References

The Various Costs of Pensions: Macro and Micro

Governmental Cost of Retirement

Pensions and Capital Formation

Regulating Corporate Pensions

DC vs. DB: Shifting the Risks

Freezing Pension Plans

Where Do We Go from Here?

References

The Various Pillars of Retirement: Social Security, Company Pensions, Supplementary Pensions, and Private Savings

Pillars of Retirement

Reforming OECD Pensions

Changing Role of Private Pensions

Plans for Reforming Social Pensions

Rethinking Pension Promises: Breaking the Fixed Link to a Monetary Value

Intergenerational Risk-Sharing

Conclusions

Case Study: Public Sector vs. Private Pensions

References

Asset Classes: Historical Performance and Risk

Equities

ETFs: Exchange-Traded Funds

Bonds and Fixed Income

The Bond-Stock Measure for Medium-Term Large Crash Prediction

Hedge Funds

Real Assets

Housing as an Asset Class

Gold and Other Commodities

Private Equity and Related Assets

Currencies

Evaluation of Great Investors

Fundamental and Seasonal Anomalies of Asset Returns

References

The Current Economic Crisis and Its Impact on Retirement Decisions

Household and Government Debt

Were the Crash Models Helpful in Signaling the US and Worldwide 2007-2009 Crash?

The Subprime Crisis and How It Evolved

Impact on Retirement Expectations

Pensions in Trouble

State Pensions

Future ERP

Future Inflation and Pensions

References

Special Issues and Models

The Impact of Population Aging on Household Portfolios and Asset Returns

Introduction

The Empirical Evidence

Models for Portfolio Choices and Life-Cycle Asset Allocations

Conclusions

References

A Continuous Time Approach to Asset-Liability Surplus Management

The Rudolf-Ziemba (2004) Intergenerational Surplus Management Model

A Case Study Application of the Rudolf-Ziemba Model

References

Should Defined Benefit Pension Schemes Be Career Average or Final Salary?

Introduction

Career Average Defined Benefit Schemes

Cost Neutrality

Choosing the Revaluation Rate

The Adoption of Career Average Pension Schemes

Advantages of a Switch to a Career Average Scheme

Disadvantages of a Switch to a Career Average Scheme

Redistribution Effects of a Switch to Career Average Pensions

Conclusions

References

Applying Stochastic Programming to the US Defined Benefit Pension System

Introduction

Integrated Corporate/Pension Planning Model

Assisting the Defined Benefit Pension System

Conclusions

References

Mortality-Linked Securities and Derivatives

Introduction

Longevity Risk Transfers

Capital Market Solutions and the Development of Mortality-Linked Securities and Derivatives

Recent Trends in Mortality-Linked Securities

Hedging Pension Liabilities with Mortality-Linked Securities and Derivatives

Conclusion

References

Asset Allocation and Governance Issues of Government-Owned Pensions

Introduction

Types of Sovereign Funds

Is There a Common Asset Allocation for Pension Funds?

Sovereign Pension Funds and International Capital Markets

Governance Issues of Public Pension Funds

Regional Trends

Conclusion

References

Issues in Individual Asset-Liability Management for Retirement

Own Company Stock

The Role of Annuities

The Role of Insurance

The Role of Managed Withdrawal Plans

Where and How to Retire?

References

Modeling the Issues

Learning from Other Models

Preserving Endowment Spending

Devising a Rule So That Spending Never Falls

References

The Innovest Austrian Pension Fund Financial Planning Model

How Should Companies Fund Their Liabilities and Determine Allocations among Asset Classes and Hedging Instruments?

Formulating InnoALM as a Multistage Stochastic Linear Programming Model

Some Typical Applications

Some Test Results

Model Tests

References

An Individual ALM Model for Lifetime Asset-Liability Management

References

Implementation and Numerical Results of Individual ALM Model for Lifetime Asset-Liability Management

References

Conclusions

Index

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