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Series:   Elements in Quantitative Finance

Advances in Retirement Investing

Published online by Cambridge University Press:  12 August 2020

Lionel Martellini  and
Vincent Milhau
Lionel Martellini
Affiliation:
EDHEC-Risk Institute
Vincent Milhau
Affiliation:
EDHEC-Risk Institute

Summary

To supplement replacement income provided by Social Security and employer­sponsored pension plans, individuals need to rely on their own saving and investment choices during accumulation. Once retired, they must also decide at which rate to spend their savings, with the usual dilemma between present and future consumption in mind. This Element explains how financial engineering and risk management techniques can help them in these complex decisions. First, it introduces 'retirement bonds', or retirement bond replicating portfolios, that provide stable and predictable replacement income during the decumulation period. Second, it describes investment strategies that combine the retirement bond with an efficient performance­seeking portfolio so as to reduce uncertainty over the future amount of income while offering upside potential. Finally, strategies using risk insurance techniques are proposed to secure minimum levels of replacement income while giving the possibility of reaching higher levels of income.
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Keywords

goal-based investingretirement investingreplacement incomehedging portfolio
Type
Element
Information
Series: Elements in Quantitative Finance
Online ISBN: 9781108917377
Publisher: Cambridge University Press
Print publication: 10 September 2020

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