Growing Old Gracefully: Optimal Financial Behaviour over a Stochastic Life Cycle

The aim of this work is to investigate an individual's optimal life cycle behaviour, with particular reference to financial decisions made over time. How should one consume, save, invest, insure and annuitise over one's life? In chapter 3 we implement a model of lifetime personal financial planning. By simulating this theoretical model of lifetime personal financial planning we are able to quantitatively assess popular financial advice. We examine age-phasing as well as a traditional rule of thumb for life insurance purchase. Our modelling also sheds light on the reasons for the thinness of voluntary life annuity markets worldwide. Chapter 4 extends the model, examining the implications for individual optimal behaviour if either borrowing is constrained, no annuity market exists, or mean reversion and persistence are present in equity returns. Chapter 5 considers the important question of determining optimal consumption, investment and life insurance/annuity demand over the life cycle in an environment where labour income is no longer deterministic but stochastic.

Thomas (Sachi) Purcal is a lecturer in Actuarial Studies at the University of New South Wales in Sydney, Australia. Previously he worked in actuarial consulting in Canada and for a life insurer in Australia. Dr.Purcal has degrees from Macquarie University, the University of British Columbia and the University of New South Wales.