Growing Old Gracefully

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.