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Flexible Life Annuities

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  • Alexis Direr

Abstract

Annuity contracts typically deliver a stream of income at a predetermined level in order to insure against the risk of longevity. This paper explores whether flexible annuities, which give subscribers the possibility to choose between different levels for their annuities, may be welfare enhancing. In the case where agents gradually discover their actual probability of survival, a predetermined and "one-size-fits-all" annuity plan is optimal. If an expenditure risk is added along with the longevity risk, a flexible annuity plan is better even though the consumption path cannot be isolated from uninsured expenses anymore.

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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-2007-10/cesifo1_wp2125.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2125.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2125

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References

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  1. Walliser, Jan, 2000. "Regulation of withdrawals in individual account systems," Social Protection Discussion Papers 23069, The World Bank.
  2. Jeffrey R. Brown, 1999. "Private Pensions, Mortality Risk, and the Decision to Annuitize," NBER Working Papers 7191, National Bureau of Economic Research, Inc.
  3. Mariacristina De Nardi & Eric French & John Bailey Jones, 2006. "Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles," 2006 Meeting Papers 46, Society for Economic Dynamics.
  4. Andrew B. Abel, 1987. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," NBER Working Papers 1664, National Bureau of Economic Research, Inc.
  5. Brugiavini, Agar, 1993. "Uncertainty resolution and the timing of annuity purchases," Journal of Public Economics, Elsevier, vol. 50(1), pages 31-62, January.
  6. Jeffrey R. Brown & Mark J. Warshawsky, 2001. "Longevity-Insured Retirement Distributions from Pension Plans: Market and Regulatory Issues," NBER Working Papers 8064, National Bureau of Economic Research, Inc.
  7. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September.
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Cited by:
  1. Mathias Kifmann, 2008. "The Design of Pension Pay Out Options when the Health Status during Retirement is Uncertain," CESifo Working Paper Series 2211, CESifo Group Munich.
  2. d'Albis, Hippolyte & Etner, Johanna, 2013. "Illiquid Life Annuities," MPRA Paper 50751, University Library of Munich, Germany.
  3. Moshe A. Milevsky & Thomas S. Salisbury, 2013. "Optimal Retirement Tontines for the 21st Century: With Reference to Mortality Derivatives in 1693," Papers 1307.2824, arXiv.org.

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