Stochastic Optimal Retirement Planning with Renewable Energy Investments

What the paper says

Retirement planning requires strategies that balance immediate needs with long-term financial stability, especially as retirees face challenges like income uncertainty, market volatility, and unreliable traditional investments. Renewable energy—particularly solar—has emerged as a viable alternative, offering reduced energy costs and alignment with sustainability goals. However, adoption is hindered by high upfront costs and fluctuating market conditions. This paper presents a novel Monte-Carlo-based optimization framework integrated with dynamic programming (DP) to address these issues. The framework simulates diverse economic and energy market scenarios to support informed retirement decisions. It compares outcomes of investing solely in annuities with those from a hybrid strategy combining annuities and solar energy. Despite uncertainty in solar returns, findings show that retirees who diversify enjoy greater financial security. By merging Monte Carlo simulations with the flexibility of DP, this approach enables smarter investment planning, optimizes spending, and strengthens long-term resilience. It offers the dual benefit of financial sustainability and environmental responsibility—a transformative shift for retirement planning.