Madsen and Tans address longevity protection for people with Defined Contribution (DC) plans, focusing on variable retirement. The authors introduce the concept of an Equilibrium Retirement Age and show how this increases as life expectancy rises. The authors demonstrate how an individual can achieve equilibrium between capital accumulated through work and capital required in retirement. They derive a closed-form formula for a simplified version of the equilibrium challenge and show how this can provide insight into the trade-offs a DC plan participant faces.

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Erasmus University Rotterdam

Madsen, C., & Tans, M. (2012). Personal longevity risk: Defined contribution pensions and the introduction of an equilibrium retirement age. Pensions, 17(3), 169–176. doi:10.1057/pm.2012.19