Is it really good to annuitize?

Feigenbaum, James; Gahramanov, Emin; Tang, Xueli

doi:10.1016/j.jebo.2013.07.005

Cited by 23 publications

(16 citation statements)

References 25 publications

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“…Davidoff et al (2005) extends the analysis and show that individuals benefit from converting a significant fraction of their assets into life annuities even in the presence of incomplete markets for life annuities. Feigenbaum et al (2013), on the other hand, show that the welfare effect of die to those who survive it is not clear that the life annuity should provide a higher rate of return. In fact, the EPDV of the ITP life annuity is somewhat lower than the EPDV of the fixed-term payouts, which implies that fixed-term payouts would be the most rational choice for the average plan participant.…”

Section: Empirical Predictionsmentioning

confidence: 99%

The determinants of annuitization: evidence from Sweden

Hagen

2015

Int Tax Public Finance

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This paper uses unique micro data from a Swedish occupational pension plan to study the determinants of annuitization. The data is merged with national administrative data to create a large data set with rich individual background characteristics. The pension can either be withdrawn as a life annuity or during a fixed number of years with a minimum of five years. Low accumulation of assets is strongly associated with the choice of the 5-year payout. Consistent with the predictions of a life-cycle model, retirees who choose the 5-year payout are in worse health and exhibit higher ex-post mortality rates than annuitants. I also find that the parents of annuitants live longer than the parents of those who choose the 5-year payout. This suggests that individuals form expectations about how long they are likely to live based on the life-span patterns of their parents and take this into account when they decide whether to annuitize or not.

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Section: Empirical Predictionsmentioning

confidence: 99%

The determinants of annuitization: evidence from Sweden

Hagen

2015

Int Tax Public Finance

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“…Moreover, any change in savings behaviour induced by the higher return received on savings will have an impact on factor prices. Taking these factors into account, Pecchenino and Pollard (1997), Habermann (2008, 2010), Feigenbaum et al (2013) and Heijdra et al (2014) have shown that the magnitude of the general-equilibrium repercussions is potentially large enough to nullify and even reverse the beneficial welfare effects of annuities.…”

Section: Introductionmentioning

confidence: 99%

“…Feigenbaum et al (2013) consider a similar model but focus solely on the steady state impact of annuities and, generally, take a more behavioral perspective. The paper most closely associated to ours is that of Fehr and Habermann (2010) who, however, focus on a policy of mandatory annuitization (as opposed to voluntary in our analysis) and do not consider how the positive partial-equilibrium and negative generalequilibrium can be balanced so as to create an annuity market of optimal size.…”

Section: Introductionmentioning

confidence: 99%

Stimulating Annuity Markets

2014

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We study the short-, medium-, and long-run implications of stimulating annuity markets in a dynamic general-equilibrium overlapping-generations model. We find that beneficial partialequilibrium effects of stimulating annuity markets are counteracted by negative generalequilibrium repercussions. Balancing the positive partial-equilibrium and negative generalequilibrium forces we show that there exists some intermediate level of annuitization such that long-run welfare is maximized. Studying the transition to the optimal degree of annuitization shows that currently middle-aged individuals stand to gain most from the stimulation of annuity markets. JEL-Code: C680, D910, J140, H550.

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“…The efficiency of transfer from the old to the young has been shown in overlapping generations models with accidental bequests by Pecchenino and Pollard (1997), Feigenbaum, Gahramanov, and Tang (2013), and Heijdra, Mierau, and Reijnders (2014). In equilibrium, partial annuitization may dominate full annuitization strategies as they imply an unintended transfer to the next generation and an increase in savings.…”

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confidence: 99%

Illiquid life annuities

d’Albis

Etner

2017

J Public Economic Theory

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In this paper, we consider illiquid life annuity contracts and show that they may be preferred to those illustrated by Yaari. In an overlapping generations economy, liquid life annuities are demanded only if the equilibrium is dynamically inefficient. However, an equilibrium displaying a positive demand for illiquid life annuities is indeed efficient. In this latter case, the welfare at steady state is larger if illiquid life annuity contracts are available.

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Is it really good to annuitize?

Cited by 23 publications

References 25 publications

The determinants of annuitization: evidence from Sweden

The determinants of annuitization: evidence from Sweden

Stimulating Annuity Markets

Illiquid life annuities

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