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Mortality Heterogeneity and The Distributional Consequences of Mandatory Annuitization

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Author Info
Guan Gong
Anthony Webb () (Center for Retirement Research, Boston College)
Abstract

Using data from the Health and Retirement Study (HRS), we calculate the relationship between socio-economic status and a utility based measure of annuity value. We find considerable variation between groups once we take account of not only socio-economic differences in mortality, but also pre-annuitized wealth and longevity risk pooling in marriage. Using HRS data on subjective survival probabilities, we then construct a subjective life table for each individual in the HRS. We show that these tables vary appropriately between groups and aggregate closely to group level averages. We calculate the value each household would place on annuitization, based on the husband and wife's subjective life tables, and the household's degree of risk-aversion and proportion of pre-annuitized wealth. A significant minority would perceive themselves as suffering a net loss from mandatory annuitization.

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Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2006-11.

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Length: 30 pages
Date of creation: Jun 2006
Date of revision: Jun 2006
Handle: RePEc:crr:crrwps:wp2006-11

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Keywords: annuitization; mandatory; risk; mortality;

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  4. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier. [Downloadable!] (restricted)
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  11. Michael Hurd & Daniel McFadden & Angela Merrill, 1999. "Predictors of Mortality Among the Elderly," NBER Working Papers 7440, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Benjamin M. Friedman & Mark Warshawsky, 1988. "Annuity Prices and Saving Behavior in the United States," NBER Chapters, in: Pensions in the U.S. Economy, pages 53-84 National Bureau of Economic Research, Inc. [Downloadable!]
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  16. Alicia H. Munnell, 2003. "The Declining Role Of Social Security," Just the Facts jtf-6, Center for Retirement Research. [Downloadable!]
  17. James M. Poterba & Steven F. Venti & David A. Wise, 2000. "Saver Behavior and 401(k) Retirement Wealth," American Economic Review, American Economic Association, vol. 90(2), pages 297-302, May. [Downloadable!] (restricted)
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