Demand for life annuities from married couples with a bequest motive
AbstractThe aim of this paper is to explain the annuities puzzle in greater depth by introducing the bequest motive. It will try to determine whether this motive really is a relevant feature influencing the demand for life annuities from married couples. With this aim in mind, we develop an optimization model of the utility provided by purchasing a life annuity with contingent survivor benefit or a joint survivor life annuity. Our model is based on that first put forward by Brown and Poterba (2000), to which we have added elements from other models, such as Friedman and Warshawsky s (1990) and Vidal and Lej rraga s (2004), which include the bequest motive. This will enable us to calculate the annuity equivalent wealth and the optimal percentage of wealth to annuitize in various contexts: the possibility of access to actuarially fair annuity markets, the inclusion of so-called market imperfections, and the assumption that couples already have part of their wealth in pre-existing life annuities. Numerical results are presented for the case of Spain. The bequest motive is found not to be a significant factor influencing the demand for annuities from couples. Indeed very few couples would be willing to purchase them once we take into account the combined effects of market imperfections, the possibility of pre-existing annuities and the bequest motive. These findings have repercussions for policy makers regulating defined contribution capitalization systems, which are complementary to defined benefit systems.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.
Volume (Year): 5 (2006)
Issue (Month): 02 (July)
Contact details of provider:
Postal: The Edinburgh Building, Shaftesbury Road, Cambridge CB2 2RU UK
Fax: +44 (0)1223 325150
Web page: http://journals.cambridge.org/jid_PEFProvider-Email:email@example.com
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Federica Teppa, 2011. "Can the longevity risk alleviate The annuitization puzzle? Empirical evidence from Dutch data," Working Papers 223, ECINEQ, Society for the Study of Economic Inequality.
- Federica Teppa, 2011. "Can the Longevity Risk Alleviate the Annuitization Puzzle? Empirical Evidence from Dutch Data," DNB Working Papers 302, Netherlands Central Bank, Research Department.
- Thomas Post & Helmut Gründl & Hato Schmeiser, 2006. "Portfolio management and retirement: what is the best arrangement for a family?," Financial Markets and Portfolio Management, Springer, vol. 20(3), pages 265-285, September.
- Lee Lockwood, 2012.
"Bequest Motives and the Annuity Puzzle,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 226-243, April.
- Lee Lockwood, 2011. "Code files for "Bequest Motives and the Annuity Puzzle"," Computer Codes 10-110, Review of Economic Dynamics.
- Thomas Post, 2009. "Individual Welfare Gains from Deferred Life-Annuities under Stochastic Lee-Carter Mortality," SFB 649 Discussion Papers SFB649DP2009-022, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Sanders, E.A.T., 2011. "Annuity market imperfections," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4960701, Tilburg University.
- Vaz, Thalita A. & Machado, Sérgio J. & Bortoluzzo, Adriana B., 2011. "Estimation of Conversion Rates into Annuities: A Brazilian Perspective," Insper Working Papers wpe_249, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.