Maurer, Raimond

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Now showing 1 - 10 of 14
  • Publication
    Dynamic Asset Allocation with Regime Shifts and Long Horizon CVaR-Constraints
    (2013-04-01) Vo, Huy Thanh; Maurer, Raimond
    We analyse portfolio policies for investors who invest optimally for given investment horizons with respect to Conditional Value-at-Risk constraints. We account for nonnormally distributed, skewed, and leptokurtic asset return distributions due to regime shifts. The focus is on standard CRRA utility with a money back guarantee at maturity, which is often augmented to individual retirement plans. Optimal solutions for the unconstrained as well as the constrained policy are provided and examined for risk management costs calculated as welfare losses. Our results confirm previous findings that money back guarantees yield mild downside protection at low economic costs for most long term investors.
  • Publication
    How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios
    (2013-10-01) Hubener, Andreas; Maurer, Raimond; Mitchell, Olivia S
    Household decisions are profoundly shaped by a complex set of financial options due to Social Security rules determining retirement, spousal, and survivor benefits, along with benefit adjustments that vary with the age at which these are claimed. These rules influence optimal household asset allocation, insurance, and work decisions, given life cycle demographic shocks such as marriage, divorce, and children. Our model generates a wealth profile and a low and stable equity fraction consistent with empirical evidence. We also confirm predictions that wives will claim retirement benefits earlier than husbands, while life insurance is mainly purchased by younger men. Our policy simulations imply that eliminating survivor benefits would sharply reduce claiming differences by sex while dramatically increasing men’s life insurance purchases.
  • Publication
    Integrated Risk Management for Defined Benefit Pensions: Models and Metrics
    (2013-09-01) Maurer, Raimond
    The Pension Benefit Guaranty Corporation (PBGC) insures private sector defined benefit (DB) pension plans when an employer becomes insolvent and is unable to pay its pension liabilities. In principle, the insurance premiums collected by PBGC should be sufficient to cover potential losses; this would ensure that PBGC could pay the insured benefits of terminated pension plan without additional external funding (e.g. from taxpayers). Therefore, the risk exposure of the PBGC from insuring DB pension plans arises from the probability of employer insolvencies; and the terminating plans’ funding status (the excess of the value of insured plan liabilities over plan assets). This paper focuses on only the second component, namely the impact of plan underfunding for the operation of the PBGC. When a DB plan is fully funded, the PBGC’s risk exposure for an ongoing plan is low even if the plan sponsor becomes insolvent. Thus the questions most pertinent to the PBGC are what key risk factors can produce underfunding in a DB plan, and how can these risk factors be quantified? We explore the most important risk factors that produce DB pension underfunding, namely investment risk and liability risk. Both are interrelated and must be considered simultaneously in order to quantify the risk exposure of a DB pension plan. We propose that an integrated risk management model (an Integrated Asset/Liability Model) can help better understand DB pension plan funding risk. We also examine the Pension Insurance Modeling System developed by the PBGC in terms of its own use of some of the building blocks of an integrated risk management model.
  • Publication
    Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management
    (2013-11-01) Kim, Hugh Hoikwang; Maurer, Raimond; Mitchell, Olivia S
    We investigate the theoretical impact of including two empirically-grounded insights in a dynamic life cycle portfolio choice model. The first is to recognize that, when managing their own financial wealth, investors incur opportunity costs in terms of current and future human capital accumulation, particularly if human capital is acquired via learning by doing. The second is that we incorporate age-varying efficiency patterns in financial decisionmaking. Both enhancements produce inactivity in portfolio adjustment patterns consistent with empirical evidence. We also analyze individuals’ optimal choice between self-managing their wealth versus delegating the task to a financial advisor. Delegation proves most valuable to the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs, as well as delegation, in a life cycle setting.
  • Publication
    Accounting and Actuarial Smoothing of Retirement Payouts in Participating Life Annuities
    (2014-02-01) Maurer, Raimond; Mitchell, Olivia S; Rogalla, Ralph; Siegelin, Ivonne
    Life insurers use accounting and actuarial techniques to smooth reporting of firm assets and liabilities, seeking to transfer surpluses in good years to cover benefit payouts in bad years. Yet these techniques been criticized as they make it difficult to assess insurers’ true financial status. We develop stylized and realistically-calibrated models of participating lifetime annuities, an insurance product that pays retirees guaranteed lifelong benefits along with variable nonguaranteed surplus. Our goal is to illustrate how accounting and actuarial techniques for this product shape policyholder wellbeing as well as insurer profitability and stability. We show that smoothing adds value to both the annuitant and the insurer, so curtailing smoothing could undermine the market for long-term retirement payout products.
  • Publication
    Will They Take the Money and Work? An Empirical Analysis of People’s Willingness to Delay Claiming Social Security Benefits for a Lump Sum
    (2014-10-01) Maurer, Raimond; Mitchell, Olivia S; Rogalla, Ralph; Schimetschek, Tatjana
    This paper investigates whether exchanging the Social Security delayed retirement credit, currently paid as an increase in lifetime annuity benefits, for a lump sum would induce later claiming and additional work. We show that people would voluntarily claim about half a year later if the lump sum were paid for claiming any time after the Early Retirement Age, and about two-thirds of a year later if the lump sum were paid only for those claiming after their Full Retirement Age. Overall, people will work one-third to one-half of the additional months, compared to the status quo. Those who would currently claim at the youngest ages are likely to be most responsive to the offer of a lump sum benefit.
  • Publication
    Participating Payout Life Annuities: Lessons from Germany
    (2012-05-01) Maurer, Raimond; Rogalla, Ralph; Siegelin, Ivonne
    This paper analyzes the regulatory framework of German immediate participating payout life annuities (PLAs), which offer guaranteed minimum benefits as well as participation in insurers’ surpluses. Our particular focus lies on the mechanics of sharing surpluses between shareholders and policyholders. We show that the process of surplus determination, allocation, and distribution mostly follows transparent and clear rules, and that an insurance company’s management has limited leeway with respect to discretionary decision making. Subsequently, we develop an Asset Liability Model for a German life insurer that offers PLAs. Based on this model, we run Monte Carlo simulations to evaluate benefit variability and insurer stability under stochastic mortality and capital market developments. Our results suggest that through PLAs guaranteed benefits can be provided with high credibility, while, at the same time, annuitants receive attractive Money’s Worth Ratios. Moreover, we show that it might be difficult to offer a fixed benefit annuity providing the same lifetime utility as a PLA for the same premium and a comparably low insolvency risk. Overall, participating life annuity schemes may be an efficient way to deal with risk factors that are highly unpredictable and difficult to hedge over the long run, such as systematic mortality and investment risks.
  • Publication
    Optimal Social Security Claiming Behavior under Lump Sum Incentives: Theory and Evidence
    (2023-01-13) Maurer, Raimond; Mitchell, Olivia S; Rogalla, Ralph; Schimetschek, Tatjana
    People who delay claiming Social Security receive higher lifelong benefits upon retirement. We survey individuals on their willingness to delay claiming later, if they could receive a lump sum in lieu of a higher annuity payment. Using a moment-matching approach, we calibrate a lifecycle model tracking observed claiming patterns under current rules and predict optimal claiming outcomes under the lump sum approach. Our model correctly predicts that early claimers under current rules would delay claiming most when offered actuarially fair lump sums, and for lump sums worth 87% as much, claiming ages would still be higher than at present.
  • Publication
    How Will Persistent Low Expected Returns Shape Household Economic Behavior?
    (2018-10-02) Horneff, Vanya; Maurer, Raimond; Mitchell, Olivia S
    Many believe that global capital markets will generate lower returns in the future versus the past. We examine how persistently lower real returns will reshape work, retirement, saving, and investment behavior of older persons using a calibrated dynamic life cycle model. In a low return regime, workers build up less wealth in their tax-qualified 401(k) accounts versus the past, claim social security benefits later, and work more. Moreover, the better-educated are more sensitive to real interest rate changes, and the least-educated alter their behavior less. Interestingly, wealth inequality is lower in periods of persistent low expected returns.
  • Publication
    Exchanging Delayed Social Security Benefits for Lump Sums: Could This Incentivize Longer Work Careers?
    (2012-10-01) Chai, Jingjing; Maurer, Raimond; Mitchell, Olivia S; Rogalla, Ralph
    Social Security benefits are currently provided as a lifelong benefit stream, though some workers would be willing to trade a portion of their annuity streams in exchange for a lump sum amount. This paper explores whether allowing people to receive a lump sum as a payment for delayed retirement rather than as an addition to their lifetime Social Security benefits might induce them to work longer. We model the factors that influence how people trade off a Social Security stream for a lump sum, and we also examine the consequences of such tradeoffs for work, retirement, and life cycle wellbeing. Our base case indicates that workers given the chance to receive their delayed retirement credit as a lump sum payment would boost their average retirement age by 1.5-2 years. This will interest policymakers seeking to reform the Social Security system without raising costs or cutting benefits, while enhancing the incentives to delay retirement.