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Would you prefer your retirement income to depend on your life expectancy?

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  • Bommier, Antoine
  • Schernberg, Hélène

Abstract

We study the demand for retirement income of agents who gradually learn about their life expectancy. For a given expected budget, temporally risk-averse agents prefer that pension levels respond to incoming information about life expectancy rather than being fixed ex-ante. Indeed, this offers a hedging strategy that couples shorter lives with higher consumption levels, and longer lives with lower consumption levels. A calibrated life-cycle model provides an order of magnitude of the effects at play.

Suggested Citation

  • Bommier, Antoine & Schernberg, Hélène, 2021. "Would you prefer your retirement income to depend on your life expectancy?," Journal of Economic Theory, Elsevier, vol. 191(C).
    • Handle: RePEc:eee:jetheo:v:191:y:2021:i:c:s0022053120301198
    DOI: 10.1016/j.jet.2020.105126
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    References listed on IDEAS

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    More about this item

    Keywords

    Pensions; Longevity risk; Risk aversion; Recursive preferences;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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