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Retirement Annuity Design in an Inflationary Climate

In: Financial Aspects of the United States Pension System

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  • Zvi Bodie
  • James E. Pesando

Abstract

This paper examines the tilt and risk-return characteristics of real retirement incomes provided by variable annuities tied to bills, long-term bonds, stocks and a mixed portfolio which combines all three. The analysis emphasizes the riskiness of the real value of benefits provided by conventional nominal annuities. The Rockefeller Foundation Plan, together with the "ad hoc" cost-of-living adjustments made by many large firms, are interpreted as representative market responses to increased inflation uncertainty. The paper examines the annuity designs implicit in these innovations, and shows them to be variants of the standard variable annuity.

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This chapter was published in:

  • Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6036.

    Handle: RePEc:nbr:nberch:6036

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Pesando, James E, 1984. "Employee Evaluation of Pension Claims and the Impact of Indexing Initiatives," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 1-17, January.
    2. Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 186-198 National Bureau of Economic Research, Inc.
    3. Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-70, May.
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    Cited by:
    1. Koijen, R.S.J. & Nijman, T.E. & Werker, B.J.M., 2006. "Optimal Portfolio Choice with Annuitization," Discussion Paper 2006-78, Tilburg University, Center for Economic Research.
    2. Wolfram J. Horneff & Raimond H. Maurer & Olivia S. Mitchell & Michael Z. Stamos, 2007. "Money in Motion: Dynamic Portfolio Choice in Retirement," NBER Working Papers 12942, National Bureau of Economic Research, Inc.
    3. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 1999. "The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program," NBER Working Papers 7005, National Bureau of Economic Research, Inc.
    4. Horneff, Wolfram J. & Maurer, Raimond H. & Mitchell, Olivia S. & Stamos, Michael Z., 2010. "Variable payout annuities and dynamic portfolio choice in retirement," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(02), pages 163-183, April.
    5. Jeffrey Brown, 2002. "Differential Mortality and the Value of Individual Account Retirement Annuities," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 401-446 National Bureau of Economic Research, Inc.
    6. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 2000. "Mortality Risk, Inflation Risk, and Annuity Products," NBER Working Papers 7812, National Bureau of Economic Research, Inc.
    7. Robert C. Merton & Zvi Bodie & Alan J. Marcus, 1984. "Pension Plan Integration as Insurance Against Social Security Risk," NBER Working Papers 1370, National Bureau of Economic Research, Inc.

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