A Life Cycle Model with Pension Benefits and Taxes
Series
Working Papers Series in Finance
Type
working paper
Date Issued
2010
Author(s)
Abstract
A life cycle model with pension benefits and taxes is analyzed by means of stochastic control. In the phase of employment an individual earns a stochastic income, contributes to a pension plan and chooses an optimal consumption and investment strategy under a tax system. At the end of the phase of employment the individual decides to fully or partially withdraw capital from the pension plan or to retire with no reduced pension benefits. During retirement an optimal consumption and investment strategy is chosen. It is shown that the individual profits from the financial protection against the uncertainty of her life span. Further, the decision on partial or full capital withdrawal from the pension fund depends crucially on the specification of the tax scheme. Under a uniform linear tax scheme and a fair pension benefit there will be no capital withdrawal. Under a more sophisticated tax scheme no, partial or full withdrawal may occur.
Language
English
Keywords
Pension Finance
Life Cycle Models
Continuous Time Portfolio Theory
Defined Contribution Pension Plans
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Center for Finance Universität St. Gallen
Publisher place
St. Gallen
Subject(s)
Division(s)
Eprints ID
69405
File(s)![Thumbnail Image]()
Name
A Life Cycle Model with Pension Benefits and Taxes 110318.pdf
Size
411.21 KB
Format
Adobe PDF
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