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Enhancing Retirement Security Through the Tax Code: The Efficacy of Tax-Based Subsidies in Life Annuity Markets

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  • GENTRY, WILLIAM M.
  • ROTHSCHILD, CASEY G.

Abstract

The under-development of existing annuity markets coupled with the secular trend away from traditional pensions towards defined contribution accounts in the U.S. raises significant concerns about the adequacy of retirement income for future retirees. We develop dynamic programming techniques to evaluate the efficacy of policies designed to address this concern by encouraging annuitization. Our analysis suggests that policies providing monetary incentives through the tax code can indeed significantly enhance annuitization among retirees: our central estimates suggest that tax-exemption based policies which have been recently proposed in Congress have the potential to increase annuitization by as much as $50,000 for each retired household, at a relatively modest revenue cost to the government. Similar sized policies based instead on refundable tax credits may be more desirable from both efficiency and distributional perspectives.

Suggested Citation

  • Gentry, William M. & Rothschild, Casey G., 2010. "Enhancing Retirement Security Through the Tax Code: The Efficacy of Tax-Based Subsidies in Life Annuity Markets," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(2), pages 185-218, April.
    • Handle: RePEc:cup:jpenef:v:9:y:2010:i:02:p:185-218_00
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    Cited by:

    1. Maria Alexandrova & Nadine Gatzert, 2019. "What Do We Know About Annuitization Decisions?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(1), pages 57-100, March.
    2. Huansang Xu & Ruyi Liu & Marek Rutkowski, 2023. "Equity Protection Swaps: A New Type of Investment Insurance for Holders of Superannuation Accounts," Papers 2305.09472, arXiv.org, revised Apr 2024.
    3. Jennifer Alonso Garcia & Michael Sherris & Samuel Thirurajah & Jonathan Ziveyi, 2020. "Taxation and policyholder behavior: the case of guaranteed minimum accumulation benefits," ULB Institutional Repository 2013/307889, ULB -- Universite Libre de Bruxelles.

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