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A Savings Plan With Targeted Contributions
Author(s) -
Owadally Iqbal,
Haberman Steven,
Gómez Hernández Denise
Publication year - 2013
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2012.01485.x
Subject(s) - planner , investment (military) , economics , econometrics , plan (archaeology) , actuarial science , rate of return , liability , finance , computer science , programming language , archaeology , politics , political science , law , history
A BSTRACT We consider a simple savings problem where contributions are made to a fund and invested to meet a future liability. The conventional approach is to estimate future investment return and calculate a fixed contribution to be paid regularly by the saver. We propose a flexible plan where contributions are systematically adjusted and targeted. We show by means of stochastic simulations that this plan has a reduced risk of a shortfall and is relatively insensitive to errors in the planner's estimate of future returns. Sensitivity analyses in terms of parameter values, stochastic return models and investment horizons are also performed.