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Journal of Economic Dynamics and Control
Article . 2017 . Peer-reviewed
License: Elsevier TDM
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Article . 2017
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SSRN Electronic Journal
Article . 2017 . Peer-reviewed
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https://dx.doi.org/10.48550/ar...
Article . 2018
License: arXiv Non-Exclusive Distribution
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Retirement Spending and Biological Age

Retirement spending and biological age
Authors: H. Huang; M.A. Milevsky; T.S. Salisbury;

Retirement Spending and Biological Age

Abstract

We solve a lifecycle model in which the consumer's chronological age does not move in lockstep with calendar time. Instead, biological age increases at a stochastic non-linear rate in time like a broken clock that might occasionally move backwards. In other words, biological age could actually decline. Our paper is inspired by the growing body of medical literature that has identified biomarkers which indicate how people age at different rates. This offers better estimates of expected remaining lifetime and future mortality rates. It isn't farfetched to argue that in the not-too-distant future personal age will be more closely associated with biological vs. calendar age. Thus, after introducing our stochastic mortality model we derive optimal consumption rates in a classic Yaari (1965) framework adjusted to our proper clock time. In addition to the normative implications of having access to biological age, our positive objective is to partially explain the cross-sectional heterogeneity in retirement spending rates at any given chronological age. In sum, we argue that neither biological nor chronological age alone is a sufficient statistic for making economic decisions. Rather, both ages are required to behave rationally.

Keywords

FOS: Economics and business, Portfolio theory, Quantitative Finance - Mathematical Finance, Risk theory, insurance, longevity risk, pensions, optimization, Mathematical Finance (q-fin.MF), lifecycle

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    influence
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    This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
17
Top 10%
Top 10%
Top 10%
Green
bronze