Optimal gradual annuitization : quantifying the costs of switching to annuities

We compute the optimal dynamic asset allocation policy for a retiree with Epstein-Zin utility. The retiree can decide how much he consumes and how much he invests in stocks, bonds, and annuities. Pricing the annuities we account for asymmetric mortality beliefs and administration expenses. We show that the retiree does not purchase annuities only once but rather several times during retirement (gradual annuitization). We analyze the case in which the retiree is restricted to buy annuities only once and has to perform a (complete or partial) switching strategy. This restriction reduces both the utility and the demand for annuities

Deferred Annuities and Strategic Asset Allocation

We derive the optimal portfolio choice and consumption pattern over the lifecycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to deferred annuities. Deferred annuities offer a hedge against mortality risk and provide similar benefits as Social Security. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life and to earn the equity premium. We find a marginal difference between a strategy involving deferred annuities and one where the investor can purchase immediate life annuities.

The Constitutionality of Student-Led Prayer at Public School Graduation Ceremonies

The Supreme Court consistently has held that it is unconstitutional to pray in public school classrooms.\u27 Until 1992, however, the Court had never addressed the issue of prayer at a public school graduation ceremony. Prior to the Court\u27s ruling, public school districts across the country regularly included a prayer of some variety in their graduation programs. In June 1992, the Supreme Court finally addressed this longstanding practice. In Lee v. Weisman, the Court held that the Providence, Rhode Island school district violated the Establishment Clause of the First Amendment by permitting a rabbi to offer an invocation and benediction at its commencement ceremony. Although it is possible to interpret the Weisman decision as proscribing all prayer at public school graduation ceremonies, at least one court refused to read Weisman this broadly. In Jones v. Clear Creek Independent School District, the Fifth Circuit Court of Appeals held that a Texas school district did not violate the Establishment Clause when it allowed student volunteers to recite prayers at its commencement ceremony. Clear Creek reached the Supreme Court during the Court\u27s 1992 term, just weeks after the Weisman decision. The Court vacated the Clear Creek ruling and remanded it to the Fifth Circuit, with instructions to rehear it in light of Weisman. The Fifth Circuit promptly reaffirmed the constitutionality of the Clear Creek student-led prayers, notwithstanding Weisman. The Supreme Court subsequently denied certiorari, adding to the confusion surrounding what types of prayer might survive Weisman. Principals, superintendents, and state legislatures continue to struggle to identify what kind of prayer, if any, is constitutionally permissible at public school commencement ceremonies. In early 1993, a Pat Robertson backed organization, the American Center for Law and Justice ( ACLJ ), pressured schools across the nation to permit student-led prayers at their graduation ceremonies in lieu of the clergy-led prayers outlawed in Weisman. The ACLJ argued that powers. Because Congress possessed no power under the Constitution to legislate on matters concerning religion, Congress has no such power even in the absence of the First Amendment. It is therefore unreasonable, even fatuous, to believe that an express prohibition of power--\u27Congress shall make no law respecting an establishment of religion\u27-vests or creates the power, previously nonexistent, of supporting religion by aid to all religious groups

Parametric coupling for superconducting qubits

We propose a scheme to couple two superconducting charge or flux qubits biased at their symmetry points with unequal energy splittings. Modulating the coupling constant between two qubits at the sum or difference of their two frequencies allows to bring them into resonance in the rotating frame. Switching on and off the modulation amounts to switching on and off the coupling which can be realized at nanosecond speed. We discuss various physical implementations of this idea, and find that our scheme can lead to rapid operation of a two-qubit gate.Comment: 6 page

Optimizing the Retirement Portfolio: Asset Allocation, Annuitization, and Risk Aversion

Retirees must draw down their accumulated assets in an orderly fashion so as not to exhaust their funds too soon. We derive the optimal retirement portfolio from a menu that includes payout annuities as well as an investment allocation and a withdrawal strategy, assuming risk aversion, stochastic capital markets, and uncertain lifetimes. The resulting portfolio allocation, when fixed as of retirement, is then compared to phased withdrawal strategies such a %u201Cself-annuitization%u201D plan or the 401(k) %u201Cdefault%u201D pattern encouraged under US tax law. Surprisingly, the fixed percentage approach proves appealing for retirees across a wide range of risk preferences, supporting financial planning advisors who often recommend this rule. We then permit the retiree to switch to an annuity later, which gives her the chance to invest in the capital market and %u201Cbet on death.%u201D As risk aversion rises, annuities first crowd out bonds in retiree portfolios; at higher risk aversion still, annuities replace equities in the portfolio. Making annuitization compulsory can also lead to substantial utility losses for less risk-averse investors.

Extracting Semantics of Individual Places from Movement Data by Analyzing Temporal Patterns of Visits

Data reflecting movements of people, such as GPS or GSM tracks, can be a source of information about mobility behaviors and activities of people. Such information is required for various kinds of spatial planning in the public and business sectors. Movement data by themselves are semantically poor. Meaningful information can be derived by means of interactive visual analysis performed by a human expert; however, this is only possible for data about a small number of people. We suggest an approach that allows scaling to large datasets reflecting movements of numerous people. It includes extracting stops, clustering them for identifying personal places of interest (POIs), and creating temporal signatures of the POIs characterizing the temporal distribution of the stops with respect to the daily and weekly time cycles and the time line. The analyst can give meanings to selected POIs based on their temporal signatures (i.e., classify them as home, work, etc.), and then POIs with similar signatures can be classified automatically. We demonstrate the possibilities for interactive visual semantic analysis by example of GSM, GPS, and Twitter data. GPS data allow inferring richer semantic information, but temporal signatures alone may be insufficient for interpreting short stops. Twitter data are similar to GSM data but additionally contain message texts, which can help in place interpretation. We plan to develop an intelligent system that learns how to classify personal places and trips while a human analyst visually analyzes and semantically annotates selected subsets of movement data

Money in Motion: Dynamic Portfolio Choice in Retirement

Retirees confront the difficult problem of how to manage their money in retirement so as to not outlive their funds while continuing to invest in capital markets. We posit a dynamic utility maximizer who makes both asset location and allocation decisions when managing her retirement financial wealth and annuities, and we prove that she can benefit from both the equity premium and longevity insurance in her retirement portfolio. Even without bequests, she will not fully annuitize; rather, her optimal stock allocation amounts initially to more than half of her financial wealth and declines with age. Welfare gains from this strategy can amount to 40 percent of financial wealth (depending on risk parameters and other resources). In practice, it turns out that many retirees will do almost as well by purchasing a variable annuity invested 60/40 in stocks/bonds.

Asset Allocation and Location over the Life Cycle with Survival-Contingent Payouts

This paper shows how lifelong survival-contingent payouts can enhance investor wellbeing in the context of a portfolio choice model which integrates uninsurable labor income and asymmetric mortality expectations. Our model generates optimal asset location patterns indicating how much to hold in liquid versus illiquid survival-contingent payouts over the lifetime, and also asset allocation paths, showing how to invest in stocks versus bonds. We conrm that the investor will gradually move money out of her liquid saving into survivalcontingent assets to retirement and beyond, thereby enhancing her welfare by as much as 50 percent. The results are also robust to the introduction of uninsurable consumption shocks in housing expenses, income flows during the worklife and retirement, sudden changes in health status, and medical expenses.