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Morbidity, Mortality, Health Expenditures and Annuitization

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  • Kam Ki Tang
  • Jie Zhang

Abstract

In this paper we explore the implication of a morbidity risk for the relationship between longevity and annuitization. We divide old-age life into two periods with uncertain survival from the end of the first to the end of the second. We show that a rise in the survival rate causes different patterns of change in annuitization, depending on the initial survival rate. When the initial survival rate is low (high), there is full (partial) annuitization. There is thus an inverse relationship between longevity and annuitization.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-08/cesifo1_wp2086.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2086.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2086

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Keywords: annuity; morbidity; mortality; precautionary saving;

References

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  1. Mariacristina De Nardi & Eric French & John Bailey Jones, 2005. "Differential mortality, uncertain medical expenses, and the saving of elderly singles," Working Paper Series, Federal Reserve Bank of Chicago WP-05-13, Federal Reserve Bank of Chicago.
  2. Brugiavini, Agar, 1993. "Uncertainty resolution and the timing of annuity purchases," Journal of Public Economics, Elsevier, Elsevier, vol. 50(1), pages 31-62, January.
  3. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 3-95, Wharton School Rodney L. White Center for Financial Research.
  4. Dushi, Irena & Webb, Anthony, 2004. "Household annuitization decisions: simulations and empirical analyses," Journal of Pension Economics and Finance, Cambridge University Press, Cambridge University Press, vol. 3(02), pages 109-143, July.
  5. John Piggott & Emiliano A. Valdez & Bettina Detzel, 2005. "The Simple Analytics of a Pooled Annuity Fund," Journal of Risk & Insurance, The American Risk and Insurance Association, The American Risk and Insurance Association, vol. 72(3), pages 497-520.
  6. Palumbo, Michael G, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(2), pages 395-421, April.
  7. Olivia S. Mitchell, . "New Trends in Pension Benefit and Retirement Provisions," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 2000-1, Wharton School Pension Research Council, University of Pennsylvania.
  8. Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2003. "Annuities and Individual Welfare," NBER Working Papers 9714, National Bureau of Economic Research, Inc.
  9. Jeffrey Brown, 2001. "Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests," NBER Chapters, in: Themes in the Economics of Aging, pages 91-126 National Bureau of Economic Research, Inc.
  10. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus & David N. Weil, 1994. "The annuitization of Americans' resources: a cohort analysis," Working Paper 9413, Federal Reserve Bank of Cleveland.
  11. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(3), pages 551-573, June.
  12. Cassio M. Turra & Olivia S. Mitchell, 2004. "The Impact of Health Status and Out-of-Pocket Medical Expenditures on Annuity Valuation," Working Papers, University of Michigan, Michigan Retirement Research Center wp086, University of Michigan, Michigan Retirement Research Center.
  13. Suzanne Doyle & Olivia S. Mitchell & John Piggott, 2004. "Annuity Values in Defined Contribution Retirement Systems: Australia and Singapore Compared," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(4), pages 402-416, December.
  14. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 135-54, February.
  15. Alan M Garber, 2001. "Health Care," Levine's Working Paper Archive 391749000000000153, David K. Levine.
  16. Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
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