RT Journal Article
SR Electronic
T1 Solving the Decumulation Puzzle with Dynamic Asset Allocation and Annuities
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 135
OP 151
DO 10.3905/jwm.2022.1.170
VO 25
IS 1
A1 Jianxiong Sun
A1 Hongli Lan
YR 2022
UL https://pm-research.com/content/25/1/135.abstract
AB This article presents a framework that solves the post-retirement investment and consumption problem by maximizing the utility of consumption over time. The model produces optimal solutions on asset allocation, consumption, and annuitization in retirement with consideration for longevity/mortality risks. The optimized investment solution is a function of wealth and age that can accommodate for different risk aversions and life expectancies. We find that annuities offer the most utility for investors with higher wealth relative to their guaranteed income and are more effective when purchased within certain age bands. Compared to traditional glide-path type approaches, the optimized solution provides life-time consumption profiles that are superior in both the average and downside cases.