Lifecycle Portfolio Choice with Systematic Longevity Risk and Variable Investment-Linked Deferred Annuities
AbstractThis paper assesses the impact of variable investment-linked deferred annuities (VILDAs) on lifecycle consumption, saving, and portfolio allocation patterns given stochastic and systematic mortality. Insurers have taken two approaches to manage systematic mortality risks, namely self-insurance and risk transfer to purchasers of the annuity products. We demonstrate that self-insurance leads to high loadings, so that households offered a choice would favor the risk transfer scheme. Reservation loadings on the actuarially fair VILDA price for non-participation are 0.5-8%; if insurers cannot hedge within this range, they will transfer systematic longevity risks to the annuitants. Our findings have implications for new payout products that may be attractive to older households seeking to protect against retirement shortfalls.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17505.
Date of creation: Oct 2011
Date of revision:
Note: AG LS PE
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Other versions of this item:
- Raimond Maurer & Olivia S. Mitchell & Ralph Rogalla & Vasily Kartashov, 2013. "Lifecycle Portfolio Choice With Systematic Longevity Risk and Variable Investment—Linked Deferred Annuities," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(3), pages 649-676, 09.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G2 - Financial Economics - - Financial Institutions and Services
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-10-22 (Economics of Ageing)
- NEP-ALL-2011-10-22 (All new papers)
- NEP-CIS-2011-10-22 (Confederation of Independent States)
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