Wolfram J. Horneff
Goethe University Frankfurt
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Featured researches published by Wolfram J. Horneff.
Journal of Pension Economics & Finance | 2010
Wolfram J. Horneff; Raimond Maurer; Olivia S. Mitchell; Michael Z. Stamos
Many retirees hope to continue earning capital market rewards on their saving while avoiding outliving their funds during retirement. We model a dynamic utility maximizing investor who seeks to benefit from holding both equity and longevity insurance. She is free to adjust her portfolio allocation of her financial wealth as well as of the annuity over time, and she can purchase variable payout annuities any time and incrementally. In this setting, we show that the retiree will not fully annuitize even without bequests; rather, she will combine variable annuities with withdrawals from her liquid financial wealth so as to match her desired consumption profile. Optimal stock exposures decrease over time, both within the variable annuity and the withdrawal plan. Welfare gains from this strategy can amount to 40% of financial wealth, depending on risk parameters and other resources; additionally, many retirees will do almost as well as the fully optimized outcome if they hold variable annuities invested 60/40 in stocks/bonds.
Journal of Risk and Insurance | 2008
Wolfram J. Horneff; Raimond Maurer; Michael Z. Stamos
We compute the optimal dynamic annuitization and asset allocation policy for a retiree with Epstein/Zin preferences, uncertain investment horizon, potential bequest motives, and pre-existing pension income. In our setting the retiree can decide each year how much he consumes and how much he invests in stocks, bonds, and life annuities, while the prior literature mostly considered restricted so-called deterministic or stochastic switching strategies. We show that postponing the annuity purchase is no longer optimal in the gradual annuitization case since investors are able to attain the optimal mix between liquid assets (stocks and bonds) and illiquid life-annuities each year. In order to assess potential utility losses, we benchmark various restricted annuitization strategies against the unrestricted gradual annuitization strategy.
National Bureau of Economic Research | 2007
Wolfram J. Horneff; Raimond Maurer; Olivia S. Mitchell; Michael Z. Stamos
Retirees confront the difficult problem of how to manage their money in retirement so as to not outlive their funds while continuing to invest in capital markets. We posit a dynamic utility maximizer who makes both asset location and allocation decisions when managing her retirement financial wealth and annuities, and we prove that she can benefit from both the equity premium and longevity insurance in her retirement portfolio. Even without bequests, she will not fully annuitize; rather, her optimal stock allocation amounts initially to more than half of her financial wealth and declines with age. Welfare gains from this strategy can amount to 40 percent of financial wealth (depending on risk parameters and other resources). In practice, it turns out that many retirees will do almost as well by purchasing a variable annuity invested 60/40 in stocks/bonds.
Archive | 2008
Wolfram J. Horneff; Raimond Maurer
We derive the optimal portfolio choice and consumption pattern over the lifecycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to deferred annuities. Deferred annuities offer a hedge against mortality risk and provide similar benefits as Social Security. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life and to earn the equity premium. We find a marginal difference between a strategy involving deferred annuities and one where the investor can purchase immediate life annuities.
Journal of Banking and Finance | 2009
Wolfram J. Horneff; Raimond Maurer; Olivia S. Mitchell; Michael Z. Stamos
Insurance Mathematics & Economics | 2008
Wolfram J. Horneff; Raimond Maurer; Olivia S. Mitchell; Ivica Dus
Journal of Economic Dynamics and Control | 2008
Wolfram J. Horneff; Raimond Maurer; Michael Z. Stamos
Review of Finance | 2011
Jingjing Chai; Wolfram J. Horneff; Raimond Maurer; Olivia S. Mitchell
Journal of Banking and Finance | 2010
Wolfram J. Horneff; Raimond Maurer; Ralph Rogalla
National Bureau of Economic Research | 2006
Wolfram J. Horneff; Raimond Maurer; Olivia S. Mitchell; Ivica Dus