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The History of Annuities in the United States

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James M. Poterba

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Abstract

This paper summarizes the development of private annuity markets in the United States. Annuities constituted a small share of the U.S. insurance market until the 1930s, when two developments contributed to their growth. First, concerns about the stability of the financial system drove investors to products offered by insurance companies, which were perceived to be stable institutions. Flexible payment deferred annuities, which permit investors to save and accumulate assets as well as draw down principal, grew rapidly in this period. Second, the group annuity market for corporate pension plans began to develop in the 1930s. The group annuity market grew more rapidly than the individual annuity market for several decades after World War II. The most recent development in the annuity marketplace has been the rapid expansion of variable annuities. These annuity products combine the investment features of mutual funds with the tax deferral available for life insurance products. Variable annuity premium payments increased by a factor of five in the most recent five years for which data are available.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6001.

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Date of creation: Apr 1997
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Handle: RePEc:nbr:nberwo:6001

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Find related papers by JEL classification:
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

References listed on IDEAS
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  1. 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!]
  2. Benjamin M. Friedman & Mark Warshawsky, 1988. "Annuity Prices and Saving Behavior in the United States," NBER Working Papers 1683, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
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  1. Johann K. Brunner & Susanne Pech, 2002. "Adverse selection in the annuity market with sequential and simultaneous insurance demand," Economics working papers 2002-04, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
    Other versions:
  2. von Gaudecker, Hans-Martin & Weber II, Carsten, 2003. "Surprises in a Growing Market Niche - An Evaluation of the German Private Annuities Market," Sonderforschungsbereich 504 Publications 03-08, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  3. Yoon Sook Kim & Paul S. Mills & Todd Groome & François Haas & John Kiff & Shinobu Nakagawa & Parmeshwar Ramlogan & Oksana Khadarina & Nicolas R. Blancher & William Lee, 2006. "The Limits of Market-Based Risk Transfer and Implications for Managing Systemic Risks," IMF Working Papers 06/217, International Monetary Fund. [Downloadable!]
  4. Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, 2000. "New Evidence on the Money's Worth of Individual Annuities," NBER Working Papers 6002, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. William M. Gentry & Joseph Milano, 1998. "Taxes and Investment in Annuities," NBER Working Papers 6525, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Allison Schrager & G. A. Mackenzie, 2004. "Can The Private Annuity Market Provide Secure Retirement Income?," IMF Working Papers 04/230, International Monetary Fund. [Downloadable!]
  7. Hans-Martin von Gaudecker, & Carsten Weber, 2003. "Surprises in a Growing Market Niche," MEA discussion paper series 03029, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
    Other versions:
  8. Peter Diamond, 1998. "The Economics of Social Security Reform," NBER Working Papers 6719, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Marc Pomp & M. Bijlsma & Machiel van Dijk & Michiel van Leuvensteijn & C. Zonderland, 2005. "Competition in markets for life insurance," CPB Documents 96, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  10. Guan Gong & Anthony Webb, 2006. "Mortality Heterogeneity and The Distributional Consequences of Mandatory Annuitization," Working Papers, Center for Retirement Research at Boston College wp2006-11, Center for Retirement Research, revised Jun 2006. [Downloadable!]
  11. Li Gan & Guan Gong & Michael Hurd & Daniel McFadden, 2004. "Subjective Mortality Risk and Bequests," NBER Working Papers 10789, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Koijen, Ralph S.J. & Nijman, Theo E. & Werker, Bas J.M., 2006. "Optimal portfolio choice with annuitization," Discussion Paper 78, Tilburg University, Center for Economic Research. [Downloadable!]
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