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A Monte Carlo Study of Pension Sustainability and Inflation Dynamics
By: Bikramaditya Datta |
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Are we going to run out of money before we die? Traditionally, pensions have been an important source of sustainment in the post-retirement phase. Schemes such as the National Pension System have linked pension amounts to market forces, and also come with guidelines about how to make portfolio allocation during the investment phase, that is the service period. These schemes often involve compulsory shifting to bonds in later years - we highlight that this increases negative exposure to inflation. Another feature of such schemes involve a mandatory purchase of annuities, which also do not work well in presence of inflation. We explore alternative post-retirement plans which might lead to a more sustainable standard of living post-retirement. |
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