Inflation

Optimal life insurance and annuity decision under money illusion ArXiv ID: 2410.20128 “View on arXiv” Authors: Unknown Abstract This paper investigates the optimal consumption, investment, and life insurance/annuity decisions for a family in an inflationary economy under money illusion. The family can invest in a financial market that consists of nominal bonds, inflation-linked bonds, and a stock index. The breadwinner can also purchase life insurance or annuities that are available continuously. The family’s objective is to maximize the expected utility of a mixture of nominal and real consumption, as they partially overlook inflation and tend to think in terms of nominal rather than real monetary values. We formulate this life-cycle problem as a random horizon utility maximization problem and derive the optimal strategy. We calibrate our model to the U.S. data and demonstrate that money illusion increases life insurance demand for young adults and reduces annuity demand for retirees. Our findings indicate that the money illusion contributes to the annuity puzzle and highlights the role of financial literacy in an inflationary environment. ...

Using Monte Carlo Methods for Retirement Simulations ArXiv ID: 2306.16563 “View on arXiv” Authors: Unknown Abstract Retirement prediction helps individuals and institutions make informed financial, lifestyle, and workforce decisions based on estimated retirement portfolios. This paper attempts to predict retirement using Monte Carlo simulations, allowing one to probabilistically account for a range of possibilities. The authors propose a model to predict the values of the investment accounts IRA and 401(k) through the simulation of inflation rates, interest rates, and other pertinent factors. They provide a user case study to discuss the implications of the proposed model. ...