Retirement Planning

Bifurcation in optimal retirement ArXiv ID: 2506.02155 “View on arXiv” Authors: Bushra Shehnam Ashraf, Thomas S. Salisbury Abstract We study optimal consumption and retirement using a Cobb-Douglas utility and a simple model in which an interesting bifurcation arises. With high wealth, individuals plan to retire. With low wealth they plan to never retire. At a critical level of initial wealth they may choose to defer this decision, leading to a continuum of wealth trajectories with identical utilities. ...

Target-Date Funds: A State-of-the-Art Review with Policy Applications to Chile’s Pension Reform ArXiv ID: 2504.17713 “View on arXiv” Authors: Fernando Suárez, José Manuel Peña, Omar Larré Abstract This review paper explores the evolution and implementation of target-date funds (TDFs), specifically focusing on their application within the context of Chile’s 2025 pension reform. The introduction of TDFs marks a significant shift in Chile’s pension system, which has traditionally relied on a multifund structure (essentially a target-risk funds system). We offer a comprehensive review of the theoretical foundations and practical considerations of TDFs, highlighting key challenges and opportunities for Chilean regulators and fund managers. Notably, we recommend that the glide path design should be dynamic, incorporating adjustments based on total accumulated wealth, with particular flexibility depending on each investor’s risk tolerance. Furthermore, we propose that the new benchmark for generational funds should feature a wide deviation band relative to the new benchmark portfolio, which could foster a market with more investment strategies and better competition among fund managers, encourage the inclusion of alternative assets, and foster greater diversification. Lastly, we highlight the need for future work to define a glide path model that incorporates the theoretical frameworks described, tailored to the unique parameters of the Chilean pension system. These recommendations aim to optimize the long-term retirement outcomes for Chilean workers under the new pension structure. ...

Optimal retirement in presence of stochastic labor income: a free boundary approach in an incomplete market ArXiv ID: 2407.19190 “View on arXiv” Authors: Unknown Abstract In this work, we address the optimal retirement problem in the presence of a stochastic wage, formulated as a free boundary problem. Specifically, we explore an incomplete market setting where the wage cannot be perfectly hedged through investments in the risk-free and risky assets that characterize the financial market. ...

The Conundrum of the Pension System in India: A Comprehensive study in the context of India’s Growth Story ArXiv ID: 2309.06353 “View on arXiv” Authors: Unknown Abstract India is the largest democracy in the world and has recently surpassed China to be the highest-populated country, with an estimated 1.425 billion (approximately 18% of the world population). Moreover, India’s elderly population is projected to increase to 138 million by 2035. Indian economy is already reeling under the pressure of exorbitant pension liabilities of the government for existing pensioners. As such, India has introduced a National Pension System (NPS), which is a Defined Contribution Scheme for employees joining government service on or after 1st January 2004, bidding adieu to the age-old, tried and tested Old Pension System (OPS) which is a Direct Benefit Scheme, in vogue in India since the British Raj. This is an epoch-making move by the government as it seeks to inculcate Disciplined Saving among the people while significantly reducing the government burden by reducing the Pension Liabilities of the Central and State Governments. This paper aims to analyse various features and intricacies of the NPS and address the claims of various stakeholders like the Central Government, State Government, Employees, Pensioners, etc. In light of the above, and taking cognisance of the fact that many states such as Rajasthan, Chattisgarh, Jharkhand, etc, have exited the NPS scheme and have sought back their share of NPS employee and employer contribution, this study is relevant to address the current economic and fiscal issues of India to propel towards the ambitious goal of becoming a $ 5 trillion dollar economy by 2025. Keywords: Old Pension Scheme (OPS), National Pension System (NPS), Direct Benefit Scheme, Defined Contribution Scheme, Pension Liabilities. ...

The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation ArXiv ID: ssrn-973790 “View on arXiv” Authors: Unknown Abstract Many consumers make poor financial choices and older adults are particularly vulnerable to such errors. About half of the population between ages 80 and 89 eith Keywords: Consumer Finance, Behavioral Finance, Financial Literacy, Retirement Planning, Household Finance Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 8.5/10 Quadrant: Street Traders Why: The paper relies on extensive empirical analysis of proprietary credit data and the Health and Retirement Survey, involving statistical modeling of age patterns in financial mistakes, but its mathematical content is primarily statistical and econometric (regressions) rather than dense theoretical formalism. flowchart TD A["Research Question:<br>How do financial decisions<br>change with age?"] B["Methodology:<br>Life-Cycle Model with<br>Behavioral & Cognitive Traits"] C["Data/Inputs:<br>Health and Retirement Study<br>(HRS) Survey Data"] D["Computation:<br>Estimation of Life-Cycle Model<br>Simulation of Wealth & Choices"] E["Key Findings:<br>1. Financial mistakes peak<br>in late 60s<br>2. Cognitive decline drives<br>poor decisions<br>3. Vulnerability rises<br>after age 80"] A --> B B --> C C --> D D --> E