The effects of age pension on retirement drawdown choices
Author(s)
Wiafe, Osei K
Basu, Anup K
Chen, John
Griffith University Author(s)
Year published
2017
Metadata
Show full item recordAbstract
We compare alternative drawdown strategies in retirement to a life annuity benchmark when retirees have access to government means-tested Age Pension. By adopting Epstein-Zin utility preferences which enables disentangling relative risk aversion (RRA) from elasticity of intertemporal substitution (EIS), our results suggest that retirees possess RRA levels which are higher than the inverse of EIS. This is evidenced by their preference of phased drawdown strategies to annuitisation, providing an alternative explanation to the annuity puzzle.We compare alternative drawdown strategies in retirement to a life annuity benchmark when retirees have access to government means-tested Age Pension. By adopting Epstein-Zin utility preferences which enables disentangling relative risk aversion (RRA) from elasticity of intertemporal substitution (EIS), our results suggest that retirees possess RRA levels which are higher than the inverse of EIS. This is evidenced by their preference of phased drawdown strategies to annuitisation, providing an alternative explanation to the annuity puzzle.
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Journal Title
Finance Research Letters
Subject
Banking, finance and investment
Investment and risk management
Phased drawdown
Retirement
Annuity
Epstein-Zin utility
Pensions