A Quantitative look at Retirement and Early Retirement

Résumé

A fundamental question in personal finance is the decumulation problem — how should an individual with a given level of assets fund their needs through the various stages of retirement.

This begs another key question though — when should someone retire? This can be approached in both a descriptive way — from tax data, how do Canadians and Quebecers appear to make this decision? And in a proscriptive way — what does a Merton style “optimize lifetime utility” models applied to this problem advise?

The plot thickens when we add the alternative of staged retirement — an intermediate stage of retirement where people work either fewer hours, or in a less well paid job closer to their passion or values — between full time work and full retirement — to the mix. Again we look at data about what people do and math about what people should do.

Several surprising results emerge from this analysis, which will be supplemented with management and leadership insights backed some of Davison’s observations as a long serving University Dean who talks to many people about retirement, full or staged.

Biographie

Professor of Mathematics and of Statistical and Actuarial Sciences ; Co-Founder and Principal Investigator, Financial Wellness Lab of Canada ; Fellow of the Fields Institute for Research in the Mathematical Sciences ; Dean of Science.

Matt Davison works at the intersection of quantitative finance and operations research. His particular interests are computational finance, incomplete market theory, and energy finance. He holds a Canada Research Chair in quantitative finance.Davison’s academic background is in engineering and math, and he learned a lot of finance on the job as a front office desk quant at Deutsche Bank Canada in the late 1990s. He continues to consult with industry, and serves on the academic advisory board of Mapleridge Capital Corporation.