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Mortality Heterogeneity and the Distributional Consequences of Mandatory Annuitization

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  • Guan Gong
  • Anthony Webb

Abstract

This article investigates the distributional consequences of mandatory annuitization. Using Health and Retirement Study (HRS) data and accounting for longevity risk pooling within marriage and preannuitized wealth, we find substantial redistribution away from disadvantaged groups in expected utility terms. Using HRS data on subjective survival probabilities, we construct a subjective life table for each individual in the HRS. We calculate the value each household would place on annuitization, based on the husband and wife's subjective life tables, and the household's degree of risk aversion and proportion of preannuitized wealth. A significant minority would perceive themselves as suffering a loss from mandatory annuitization.

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  • Guan Gong & Anthony Webb, 2008. "Mortality Heterogeneity and the Distributional Consequences of Mandatory Annuitization," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 1055-1079, December.
    • Handle: RePEc:bla:jrinsu:v:75:y:2008:i:4:p:1055-1079
    DOI: 10.1111/j.1539-6975.2008.00297.x
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    3. Gong, Guan & Webb, Anthony, 2010. "Evaluating the Advanced Life Deferred Annuity -- An annuity people might actually buy," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 210-221, February.
    4. Pietrzyk Radosław & Rokita Paweł, 2015. "Stochastic Goals in Financial Planning for a Two-Person Household," Statistics in Transition New Series, Polish Statistical Association, vol. 16(1), pages 111-136, March.
    5. Robert Gazzale & Julian Jamison & Alexander Karlan & Dean Karlan, 2013. "Ambiguous Solicitation: Ambiguous Prescription," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 1002-1011, January.
    6. Radosław Pietrzyk & Paweł Rokita, 2015. "Stochastic Goals In Financial Planning For A Two-Person Household," Statistics in Transition New Series, Polish Statistical Association, vol. 16(1), pages 111-136, March.
    7. Roozbeh Hosseini, 2015. "Adverse Selection in the Annuity Market and the Role for Social Security," Journal of Political Economy, University of Chicago Press, vol. 123(4), pages 941-984.
    8. Radosław Pietrzyk & Paweł Rokita, 2015. "Stochastic goals in financial planning for a two-person household," Statistics in Transition new series, Główny Urząd Statystyczny (Polska), vol. 16(1), pages 111-136, May.
    9. Hans Fehr & Christian Habermann, 2010. "Private retirement savings and mandatory annuitization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(6), pages 640-661, December.
    10. Robert S. Gazzale & Lina Walker, 2009. "Behavioral Biases in Annuity Choice: An Experiment," Department of Economics Working Papers 2009-01, Department of Economics, Williams College.
    11. Kulcsár László & Brown David, 2009. "Public Perceptions of Population Changes in Hungary," Eastern European Countryside, Sciendo, vol. 15(-1), pages 23-36, January.
    12. Yang, Jaehwan & Yuh, Yoonkyung, 2019. "Reverse Mortgages for Managing Longevity Risk in Korea," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 60(1), pages 21-40, June.
    13. Yuh, Yoonkyung & Yang, Jaehwan, 2011. "The Valuation and Redistribution Effect of the Korea National Pension," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 52(1), pages 113-142, June.

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