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Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities

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  • Ivica Dus
  • Raimond Maurer
  • Olivia S. Mitchell

Abstract

Retirees must draw down their accumulated assets in an orderly fashion, so as not to exhaust their funds too soon. We compare alternative phased withdrawal strategies to a life annuity benchmark using German data; one particular phased withdrawal rule seems attractive, as it offers relatively low expected shortfall risk, good expected payouts for the retiree during his life, and some bequest potential; results are similar for the US case. Delayed annuitization may also appeal, as it offers higher expected benefits with lower expected shortfalls. Requiring unisex mortality tables in annuity pric-ing raises women's risks under a phased withdrawal program.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11271.

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Date of creation: Apr 2005
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Publication status: published as Dus, Ivica, Raimond Maurer and Olivia S. Mitchell. "Betting On Death And Capital Marekts In Retirement: A Shortfall Risk Analysis Of Life Annuities Versus Phased Withdrawal Plans," Financial Services Review, 2005, v14(3,Fall), 169-196.
Handle: RePEc:nbr:nberwo:11271

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Cited by:
  1. Horneff, Wolfram J. & Maurer, Raimond H. & Mitchell, Olivia S. & Stamos, Michael Z., 2007. "Money in motion: Dynamic portfolio choice in retirement," CFS Working Paper Series, Center for Financial Studies (CFS) 2007/21, Center for Financial Studies (CFS).
  2. Wolfram J. Horneff & Raimond H. Maurer & Olivia S. Mitchell & Michael Z. Stamos, 2008. "Asset Allocation and Location over the Life Cycle with Survival-Contingent Payouts," NBER Working Papers 14055, National Bureau of Economic Research, Inc.
  3. Pang, Gaobo & Warshawsky, Mark, 2010. "Optimizing the equity-bond-annuity portfolio in retirement: The impact of uncertain health expenses," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 198-209, February.
  4. Wolfram J. Horneff & Raimond Maurer & Olivia S. Mitchell & Ivica Dus, 2006. "Optimizing the Retirement Portfolio: Asset Allocation, Annuitization, and Risk Aversion," NBER Working Papers 12392, National Bureau of Economic Research, Inc.
  5. Vaz, Thalita A. & Machado, Sérgio J. & Bortoluzzo, Adriana B., 2011. "Estimation of Conversion Rates into Annuities: A Brazilian Perspective," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_249, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  6. Wolfram J. Horneff & Raimond H. Maurer & Olivia S. Mitchel & Michael Z. Stamos, 2008. "Asset Allocation and Location over the Life Cycle with Survival-Contingent Payouts," Working Papers, University of Michigan, Michigan Retirement Research Center wp177, University of Michigan, Michigan Retirement Research Center.
  7. Sun Wei & Triest Robert K. & Webb Anthony, 2008. "Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth," Asia-Pacific Journal of Risk and Insurance, De Gruyter, De Gruyter, vol. 3(1), pages 1-29, September.
  8. Juan Esteban Halcartegaray & Jorge Miranda, 2011. "Efectos del SCOMP sobre la Elección individual de Modalidad de Pensión," Working Papers, Superintendencia de Pensiones 52, Superintendencia de Pensiones, revised Aug 2012.

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