Annuitization and asset allocation with borrowing constraint

Kim, Jin Gi; Jang, Bong-Gyu; Park, Seyoung

Abstract

We generalize the result of Yaari (1965) on annuitization with borrowing constraint. We show that inability to borrow against future labor income has a significant influence on an individual's consumption and asset allocation strategies. We also show that there exists a certain threshold of wealth for annuitization. We find that the wealth threshold is lower in the presence of borrowing constraint than in its absence, implying the individual's earlier retirement.

Citation

Kim, J. G., Jang, B.-G., & Park, S. (2020). Annuitization and asset allocation with borrowing constraint. Operations Research Letters, 48(5), 549-551. https://doi.org/10.1016/j.orl.2020.06.007

• Journal Article Type: Article
• Acceptance Date: Jun 24, 2020
• Online Publication Date: Jul 3, 2020
• Publication Date: Sep 1, 2020
• Deposit Date: Jun 30, 2020
• Publicly Available Date: Jan 4, 2022
• Journal: Operations Research Letters
• Print ISSN: 0167-6377
• Electronic ISSN: 0167-6377
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 48
• Issue: 5
• Pages: 549-551
• DOI: https://doi.org/10.1016/j.orl.2020.06.007
• Keywords: annuitization; wealth threshold; retirement; borrowing constraint
• Public URL: https://nottingham-repository.worktribe.com/output/4739470
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0167637720300894
• Additional Information: This article is maintained by: Elsevier; Article Title: Annuitization and asset allocation with borrowing constraint; Journal Title: Operations Research Letters; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.orl.2020.06.007; Content Type: article; Copyright: © 2020 Elsevier B.V. All rights reserved.