Optimal Time to Enter a Retirement Village
AbstractWe consider the financial planning problem of a retiree wishing to enter a retirement village at a future uncertain date. The date of entry is determined by the retiree’s utility and bequest maximisation problem within the context of uncertain future health states. In addition, the retiree must choose optimal consumption, investment, bequest and purchase of insurance products prior to their full annuitisation on entry to the retirement village. A hyperbolic absolute risk-aversion (HARA) utility function is used to allow necessary consumption for basic living and medical costs. The retirement village will typically require an initial deposit upon entry. This threshold wealth requirement leads to exercising the replication of an American put option at the uncertain stopping time. From our numerical results, active insurance and annuity markets are shown to be a critical aspect in retirement planning. View Full-Text
A printed edition of this Special Issue is available here.
Share & Cite This Article
Zhang, J.; Purcal, S.; Wei, J. Optimal Time to Enter a Retirement Village. Risks 2017, 5, 20.
Zhang J, Purcal S, Wei J. Optimal Time to Enter a Retirement Village. Risks. 2017; 5(1):20.Chicago/Turabian Style
Zhang, Jinhui; Purcal, Sachi; Wei, Jiaqin. 2017. "Optimal Time to Enter a Retirement Village." Risks 5, no. 1: 20.
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.