Speaker: Daniel Mantilla-Garcia, Universidad de Los Andes
Title: Retirement Income Loss Control Strategies
Abstract: Target income strategies allocate wealth between an income-hedging portfolio and a risky performance-seeking portfolio (PSP) during the accumulation phase, aiming to secure a strictly increasing income floor level as the retirement date nears. However, the secured floor of previous target income strategies only accounts for the retirement income level that can be secured using risk-free interest rates. This paper extends those strategies to also secure a portion of the cumulative gains obtained from the risky PSP, to account for the individuals’ income loss aversion. Our empirical analysis shows economic gains in around 90% of the historical scenarios, and large risk reduction as retirement nears with respect to the strategies without loss control. Furthermore, the strategies with loss control present less disperse retirement benefits across cohorts.