IE interfaces (산업공학)

Korean Institute of Industrial Engineers (대한산업공학회)
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An Optimal Strategy for Private Life Annuity by Utilizing AEW

AEW를 활용한 개인종신연금의 최적화 전략

  • 양재환 (서울시립대학교 경영학부) ;
  • 여윤경 (이화여자대학교 경영대학)
  • Received : 2010.11.05
  • Accepted : 2011.02.10
  • Published : 2011.09.01
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Abstract

In this paper, we evaluate life annuity plans for Korean pre-retired single and married couple participating Korea National Pension (KNP) and find optimal life annuity strategy by using utility-based measurements called AEW (Annuity Equivalent Wealth). Specifically, we extend a previous study to obtain a detailed optimal combination of annuitizing age and wealth in terms of percentage of net wealth at the time of retirement. A nonlinear optimization model is formulated with the objective of maximizing utility on consumption and bequest, and the dynamic programming (DP) technique is used to solve this problem. We find that there exist consistent patterns in optimal combinations of annuitizing age and wealth. Also, for all cases the optimal combination is significantly better than several other combinations. The results indicate that using the optimal approach can be beneficial to practitioners in insurance industry and prospective purchasers of life annuity. We conclude the paper with some discussions and suggestions.

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References

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