Annuity Risk: Volatility and Inflation Exposure in Payments from Immediate Life Annuities
AbstractSome researchers have raised concerns about significant volatility in initial payments from fixed immediate life annuities and the subsequent inflation risk during the retirement period. This paper investigates these concerns using recent high frequency data. It finds that while there is significant volatility in initial payments from nominal fixed annuities, phased purchases of fixed annuities can reduce their volatility. It also finds that an inflation-adjusted annuity may address both the volatility and inflation risk problems. The results are applicable to current discussions about Social Security and trends toward the defined contribution type of pension plan.
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Bibliographic InfoPaper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 24.
Length: 31 pages
Date of creation: Aug 2002
Date of revision:
Publication status: published in Fornero E. and E. Luciano (eds), "Developing an Annuity Market in Europe", Cheltenham: Edward Elgar, 2004
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
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