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Bequest Motives and the Annuity Puzzle

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Author Info

  • Lee Lockwood

    (University of Chicago)

Abstract

Few retirees annuitize any wealth, a fact that has so far defied explanation within the standard framework of forward-looking, expected utility-maximizing agents. Bequest motives seem a natural explanation. Yet the prevailing view is that people with plausible bequest motives should annuitize part of their wealth, and thus that bequest motives cannot explain why most people do not annuitize any wealth. I show, however, that people with plausible bequest motives are likely to be better off not annuitizing any wealth at available rates. The evidence suggests that bequest motives play a central role in limiting the demand for annuities. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2011.03.001
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 15 (2012)
Issue (Month): 2 (April)
Pages: 226-243

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Handle: RePEc:red:issued:10-110

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Related research

Keywords: Annuities; Life-cycle model; Bequest motives;

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References

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  1. Dushi, Irena & Webb, Anthony, 2004. "Household annuitization decisions: simulations and empirical analyses," Journal of Pension Economics and Finance, Cambridge University Press, vol. 3(02), pages 109-143, July.
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Citations

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Cited by:
  1. Bütler, Monika & Peijnenburg, Kim & Staubli, Stefan, 2011. "How Much Do Means-Tested Benefits Reduce the Demand for Annuities?," Economics Working Paper Series 1124, University of St. Gallen, School of Economics and Political Science.
  2. Svetlana Pashchenko, 2010. "Accounting for non-annuitization," 2010 Meeting Papers 563, Society for Economic Dynamics.
  3. d'Albis, Hippolyte & Thibault, Emmanuel, 2012. "Ambiguous Life Expectancy and the Demand for Annuities," TSE Working Papers 12-323, Toulouse School of Economics (TSE).
  4. Monika Bütler & Stefan Staubli & Maria Grazia Zito, 2008. "The Role of the Annuity’s Value on the Decision (Not) to Annuitize: Evidence from a Large Policy Change," CESifo Working Paper Series 2376, CESifo Group Munich.
  5. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian & Stephen P. Zeldes, 2012. "What Makes Annuitization More Appealing?," NBER Working Papers 18575, National Bureau of Economic Research, Inc.
  6. Jeffrey Brown & Amy Finkelstein, 2011. "Insuring Long Term Care In the US," NBER Working Papers 17451, National Bureau of Economic Research, Inc.
  7. Marco Angrisani & Michael D. Hurd & Erik Meijer, 2012. "Investment Decisions in Retirement: The Role of Subjective Expectations," Working Papers wp274, University of Michigan, Michigan Retirement Research Center.

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