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Optimizing the Aging, Retirement, and Pensions Dilemma



Optimizing the Aging, Retirement, and Pensions Dilemma

Marida Bertocchi, Sandra L. Schwartz, William T. Ziemba

ISBN: 978-0-470-58569-6 January 2010 432 Pages

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A straightforward guide focused on life cycle investing-namely aging, retirement, and pensions

Life 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 provided

The 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.



PART ONE The Aging Population: Issues for Retirement.

CHAPTER 1 Issues in Retirement.

1.1 Longevity and Changing Demographics across the World.

1.2 The Evolution of Retirement.

1.3 Provision for Retirement.


CHAPTER 2 The Various Costs of Pensions: Macro and Micro.

2.1 Governmental Cost of Retirement.

2.2 Pensions and Capital Formation.

2.3 Regulating Corporate Pensions.

2.4 DC vs. DB: Shifting the Risks.

2.5 Freezing Pension Plans.

2.6 Where Do We Go from Here?


CHAPTER 3 The Various Pillars of Retirement: Social Security, Company Pensions, Supplementary Pensions, and Private Savings.

3.1 Pillars of Retirement.

3.2 Reforming OECD Pensions.

3.3 Changing Role of Private Pensions.

3.4 Plans for Reforming Social Pensions.

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

3.6 Intergenerational Risk-Sharing.

3.7 Conclusions.

3.8 Case Study: Public Sector vs. Private Pensions.


CHAPTER 4 Asset Classes: Historical Performance and Risk.

4.1 Equities.

4.2 ETFs: Exchange-Traded Funds.

4.3 Bonds and Fixed Income.

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

4.5 Hedge Funds.

4.6 Real Assets.

4.7 Housing as an Asset Class.

4.8 Gold and Other Commodities.

4.9 Private Equity and Related Assets.

4.10 Currencies.

4.11 Evaluation of Great Investors.

4.12 Fundamental and Seasonal Anomalies of Asset Returns.


CHAPTER 5 The Current Economic Crisis and Its Impact on Retirement Decisions.

5.1 Household and Government Debt.

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

5.3 The Subprime Crisis and How It Evolved.

5.4 Impact on Retirement Expectations.

5.5 Pensions in Trouble.

5.6 State Pensions.

5.7 Future ERP.

5.8 Future Inflation and Pensions.


PART TWO Special Issues and Models.

CHAPTER 6 The Impact of Population Aging on Household Portfolios and Asset Returns.

6.1 Introduction.

6.2 The Empirical Evidence.

6.3 Models for Portfolio Choices and Life-Cycle Asset Allocations.

6.4 Conclusions.


CHAPTER 7 A Continuous Time Approach to Asset-Liability Surplus Management.

7.1 The Rudolf-Ziemba (2004) Intergenerational Surplus Management Model.

7.2 A Case Study Application of the Rudolf-Ziemba Model.


CHAPTER 8 Should Defined Benefit Pension Schemes Be Career Average or Final Salary?

8.1 Introduction.

8.2 Career Average Defined Benefit Schemes.

8.3 Cost Neutrality.

8.4 Choosing the Revaluation Rate.

8.5 The Adoption of Career Average Pension Schemes.

8.6 Advantages of a Switch to a Career Average Scheme.

8.7 Disadvantages of a Switch to a Career Average Scheme.

8.8 Redistribution Effects of a Switch to Career Average Pensions.

8.9 Conclusions.


CHAPTER 9 Applying Stochastic Programming to the US Defined Benefit Pension System.

9.1 Introduction.

9.2 Integrated Corporate/Pension Planning Model.

9.3 Assisting the Defined Benefit Pension System.

9.4 Conclusions.


CHAPTER 10 Mortality-Linked Securities and Derivatives.

10.1 Introduction.

10.2 Longevity Risk Transfers.

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

10.4 Recent Trends in Mortality-Linked Securities.

10.5 Hedging Pension Liabilities with Mortality-Linked Securities and Derivatives.

10.6 Conclusion.


CHAPTER 11 Asset Allocation and Governance Issues of Government-Owned Pensions.

11.1 Introduction.

11.2 Types of Sovereign Funds.

11.3 Is There a Common Asset Allocation for Pension Funds?

11.4 Sovereign Pension Funds and International Capital Markets.

11.5 Governance Issues of Public Pension Funds.

11.6 Regional Trends.

11.7 Conclusion.


CHAPTER 12 Issues in Individual Asset-Liability Management for Retirement.

12.1 Own Company Stock.

12.2 The Role of Annuities.

12.3 The Role of Insurance.

12.4 The Role of Managed Withdrawal Plans.

12.5 Where and How to Retire?


PART THREE Modeling the Issues.

CHAPTER 13 Learning from Other Models.

13.1 Preserving Endowment Spending.

13.2 Devising a Rule So That Spending Never Falls.


CHAPTER 14 The Innovest Austrian Pension Fund Financial Planning Model.

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

14.2 Formulating InnoALM as a Multistage Stochastic Linear Programming Model.

14.3 Some Typical Applications.

14.4 Some Test Results.

14.5 Model Tests.


CHAPTER 15 An Individual ALM Model for Lifetime Asset-Liability Management.


CHAPTER 16 Implementation and Numerical Results of Individual ALM Model for Lifetime Asset-Liability Management.


CHAPTER 17 Conclusions.