Abstract
This paper examines how simulation modeling can be used to select a retirement age under defined benefit pension plans. This approach construes the variables affecting pension benefits as probabilistic variables. Simulations are then run to generate probabilistic values for the real value of pension benefits for alternative retirement ages. By construing variables affecting pension benefits as probability distributions, this approach reflects the uncertainty facing individuals contemplating retirement. By generating estimates of retirement benefits as probability distributions rather than as single deterministic values, the model provides individuals with a more realistic and complete frame of reference for making the retirement decision.
Similar content being viewed by others
References
Abeysekera, Sarath, and E. S. Rosenbloom. 2000. “A Simulation Model for Deciding Between Lump-Sum and Dollar Cost Averaging.”Journal of Financial Planning 13: 86–96.
Blackburn, McKinley L., David E. Bloom, and Richard B. Freeman. 1990. “The Declining Economic Position of Less Skilled American Men.” InA Future of Lousy Jobs? edited by Gary Burtless (31–67). Washington, DC: Brookings Institution.
Burtless, Gary. 1990. “Earnings Inequality Over the Business Cycle.” InA Future of Lousy Jobs? edited by Gary Burtless (77–117). Washington, DC: Brookings Institution.
Council of Economic Advisors. Various issues.Economic Report of the President. Washington DC: U.S. Government Printing Office.
Crystal Ball 2000. 2000. Denver, CO: Decisioneering, Inc.
Evans, James R., and David Olson. 1998.Introduction to Simulation and Risk Analysis. Upper Saddle River, New Jersey: Prentice-Hall.
Farrell, Christopher. 2001. “A Better Way to Size up Your Nest Egg.”Business Week (January 22): 100–101.
Financial Engines. Available from http://www.financialengines.com/. Accessed December 20, 2001.
McCarthy, Ed. 2000. “Monte Carlo Simulation Still Stuck in Low Gear.”Journal of Financial Planning 13: 54–60.
McDonnell, Ken. 2000. “Understanding the Income of the Older Population.”EBBI Notes (April): 5–7.
Montalto, Catherine, Yoonkyung Yuh, and Sherman Hanna. 2000. “Determinants of Planned Retirement Age.”Financial Services Review 9: 1–15.
Newmark, Craig M. and Michael Walden. 1995. “Should You Retire At Age 62 or Age 65?”Financial Counseling and Planning 6: 35–44.
Samwick, Andrew A. 1998. “New Evidence on Pensions, Social Security and the Timing of Retirement.”Journal of Public Economics 70: 207–236.
Srikanth, Sreenivasan. 2001. “Employee Stock Options: Using Monte Carlo Simulation to Create Exercise Strategies.”Journal of Financial Planning 14: 92–98.
State of Delaware. 2000.Delaware State Employees’ Pension Plan Booklet. Office of Pensions Publication Number 10-04-600. Dover, Delaware: Office of Pensions.
T. Rowe Price. Available from http://www.troweprice.com. Accessed December 20, 2001.
U.S. Department of Health and Human Services. 1999.National Vital Statistics Reports: United States Life Tables-1997. Washington, DC: U.S. Government Printing Office.
Weiss, Gerald R. 2001. “Dynamic Rebalancing.”Journal of Financial Planning 14: 100–108.
Woerheide, Walt. 2000. “The Impact of the Pension Fund on the Decision to Work One More Year.”Financial Services Review 9: 17–31.
Author information
Authors and Affiliations
Corresponding author
Additional information
The author is grateful to an anonymous referee and Joachim Zietz. JEF editor, for helpful comments.
Rights and permissions
About this article
Cite this article
Bieker, R.F. Using simulation as a tool in selecting a retirement age under defined benefit pension plans. J Econ Finan 26, 334–343 (2002). https://doi.org/10.1007/BF02759716
Issue Date:
DOI: https://doi.org/10.1007/BF02759716