Purchasing-Power Annuities: Financial Innovation for Stable Real Retirement Income in an Inflationary Environment
AbstractThis paper is organized as follows: The first part of the paper introduces the topic. In the next part, we explore the inadequacies of conventional and equity-based variable annuities in an inflationary environment by contrasting them with a hypothetical PPA. We then try to assess the suitability of money market instruments hedged with commodity futures as the asset base for PPA's, and consider the possibility of having financial institutions offer them to the public. The major conclusion of the paper is that private pension plans could offer retiring employees a choice between a conventional money-fixed annuity or a PPA, both of which would cost theemployer the same amount of money to fund, although this option would require the PPA benefitlevel in the first few years of retirement to be lower than that of the conventional annuity.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0442.
Date of creation: Feb 1980
Date of revision:
Publication status: published as Bodie, Zvi. "An Innovation for Stable Real Retirement Income." The Journal of Portfolio Management, Vol. 7, No. 1, (Fall 1980) pp. 5-13.
Note: ME PE
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