Asset allocation and consumption towards the end of the life cycle is complicated by the uncertainty associated with the length of life. Although this risk can be hedged with life annuities, empirical evidence suggests that voluntary annuitization amongst the public is not very common, nor is it well understood. This paper develops a normative model of when, and if, one should purchase an immed...

In this paper we investigate the effect of systematic longevity risk, i.e., the risk arising from uncertain future survival probabilities, on the attractiveness of different types of annuities. We consider a life-cycle framework with expected utility where an individual faces both investment and longevity risk. In contrast to existing literature we allow not only for idiosyncratic, but also for...

This paper examines the extent of redistribution that would occur under various annuity and bequest options as part of an individual accounts retirement program. I first estimate mortality differentials by gender, race, ethnicity and level of education using the National Longitudinal Mortality Study and document substantial differences. I then use these estimates to examine the “expected transf...

We consider the choices available to a defined contribution (DC) pension plan member at the time of retirement for conversion of his pension fund into a stream of income in retirement. In particular, we compare the purchase at retirement age from a life office of a conventional life annuity (that is, a bond-based investment) with distribution programmes that involve differing exposures to equit...

Guaranteed Annuity Options (GAOs) are options available to holders of certain pension policies. Under these contracts, policyholders contribute premiums into a fund managed by the insurer. At retirement, the policyholders buy life annuities at a guaranteed rate provided by the original insurer, or annuitize with another insurer. If the guaranteed annuity rates are better than the prevailing rat...

In a two-period model with uncertainty about life expectancy, we analyze several measures which are typically included in a social security reform: tax incentives for private life annuities, a cut in the social security benefits and an increase in the social security tax. First, we look at the demand side and study the effects on old-age provision for a given annuity price. It is shown that tax...