Optimizing the Aging, Retirement, and Pensions Dilemma - Hardcover

by Marida Bertocchi (Author), Sandra L. Schwartz (Author), William T. Ziemba (Author)

A straightforward guide focused on life cycle investing-namely aging, retirement, and pensions

Life cycle investing and the implications of aging, retirement, and pensions continues to grow in importance. With people living longer, the relative and absolute number of retirees is growing while the number of workers contributing to pension funds is declining.

This reliable resource develops a detailed economic analysis-at the micro (individual) and macro (economy wide) levels-which addresses issues regarding the economics of an aging population. Topics touched upon include retirement and the associated health care funding of the aged as well as social security and the asset classes that are considered asset-liability choices over time.

• The probability of achieving adequate return patterns from various investment strategies and asset classes is reviewed
• Shares rich insights on the aging, retirement, and pensions dilemma
• An assessment of the resources the real economy will be able to commit to non-workers is provided

The three pillars of retirement are social security, company pensions, and private savings. Each of these pillars is confronted with a variety of asset-liability problems, and this book will addresses them.

Front Jacket

Planning for retirement is one of those issues that can be summarized in the observation that there is both good news and bad news: the good news is that we are living longer, the bad news is that we have to pay for it. As we recover from the worst economic crisis since the 1930s--with large losses in pensions, incomes, and savings--we find that old adages like "stocks for the long run" and the safety of index and exchange traded funds have not worked to protect asset values.

Ensuring sufficient resources for retirement encompasses a complex set of decisions involving tax issues, assumptions on future salaries and potential loss with change of jobs, asset allocation for defined contribution pension plans, longevity, interest rates, inflation, and, on retirement, whether to buy an annuity--all in the face of changing demographics and social factors. Each of these issues requires careful individual decision making in the face of increasing risk.

Written in a straightforward and accessible style, this book offers valuable advice on today's toughest retirement issues, and shows how government and corporate entities can help while assessing the risks to their own balance sheets. It also addresses some of the macroeconomic issues, asking whether an economy can effectively save without investing in productive assets.

The authors begin by exploring the key issues in retirement, including changing demographics and the shift from defined benefit to defined contribution plans. They discuss various asset classes and how they might be used for saving for retirement. The authors analyze the 2007-2009 economic crisis and its impact on retirement assets and future retirement practice. In Part II, they offer more in-depth analyses of key issues, such as asset allocation in government-owned pensions, individual asset-liability management and the role of annuities, insurance, and managed withdrawal plans, and more. Finally, in Part III, they bring the various issues together to present an all-encompassing modeling framework. While complex to implement, such models provide a good way to plan and take various future scenarios into account in these uncertain, ever-changing times.

Back Jacket

Praise for Optimizing the Aging, Retirement, and Pensions Dilemma

"Aging populations in developed nations raise many challenges, and capital markets will play a critical role in addressing them. This volume offers a coherent and concise introduction to the financial economic framework that will be vital for analyzing and ultimately resolving these challenges."
--James Poterba, Mitsui Professor of Economics, MIT, and President, National Bureau of Economic Research

"An impressive collection of ideas and information. This will be a valuable reference and resource for investors, advisors, and fiduciaries."
--Edward O. Thorp, Edward O. Thorp & Associates, author of Beat the Dealer and Beat the Market

Author Biography

MARIDA BERTOCCHI is Professor of Portfolio Theory, University of Bergamo. She taught numerous courses at the Universities of Bergamo, Urbino and Milan, including basic and advanced calculus, mathematical finance, advanced mathematical finance, stochastic optimization, and parallel processing. Bertocchi has been Dean of the Faculty of Economics and Business Administration and is the Director of the Department of Mathematics, Statistics, Computer Science and Applications, University of Bergamo. She is the author of numerous publications on bond portfolio management, asset allocation, quantitative finance, and economic and financial applications.

SANDRA L. SCHWARTZ received her interdisciplinary PhD from the University of British Columbia in commerce, economics, and ecology. She has taught business policy, business and society, and topics in research and development and applied economics at Berkeley, UCLA, Tsukuba, UBC, and Simon Fraser. Schwartz designed programs and courses for the Open University of BC. She is the author of a number of books on energy policy, Japanese management and economy, and other topics, as well as numerous articles.

WILLIAM T. ZIEMBA is the Alumni Professor of Financial Modeling and Stochastic Optimization (Emeritus), University of British Columbia. He is a well-known academic with books, research articles, and talks on various investment topics and a columnist for Wilmott magazine. Ziemba has visited and lectured at MIT, University of Chicago, Berkeley, UCLA, Cambridge, LSE, Oxford, and the ICMA Centre. He trades through William T. Ziemba Investment Management Inc. He has consulted for various financial institutions including hedge funds, pension, and other investment institutions.