2023 Australasian Actuarial Education and Research Symposium

Toby Daglish

Victoria University of Wellington

Optimal retirement wealth

This is joint work with Ting-Way (William) Hsiao

We develop a model for an investor with Duffie-Epstein preferences choosing to retire from a constant income job. The retired investor receives greater leisure time which may compensate for the loss of income. We establish a trinomial tree approach to solve this American option style problem. We demonstrate that this approach is superior to existing techniques from the literature. Lastly, we examine some numerical examples of investors making the retirement decision. Advice from the model are realistic. We provide comparative statics, demonstrating the importance of return dynamics, preferences, and income on the retirement decision.