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Retirement Annuity Design in an Inflationary Climate

In: Financial Aspects of the United States Pension System

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  • Zvi Bodie
  • James E. Pesando

Abstract

This paper examines the tilt and risk-return characteristics of real retirement incomes provided by variable annuities tied to bills, long-term bonds, stocks and a mixed portfolio which combines all three. The analysis emphasizes the riskiness of the real value of benefits provided by conventional nominal annuities. The Rockefeller Foundation Plan, together with the "ad hoc" cost-of-living adjustments made by many large firms, are interpreted as representative market responses to increased inflation uncertainty. The paper examines the annuity designs implicit in these innovations, and shows them to be variants of the standard variable annuity.
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Suggested Citation

  • Zvi Bodie & James E. Pesando, 1983. "Retirement Annuity Design in an Inflationary Climate," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 291-324, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:6036
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    References listed on IDEAS

    as
    1. Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 186-198, National Bureau of Economic Research, Inc.
    2. Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-470, May.
    3. Pesando, James E, 1984. "Employee Evaluation of Pension Claims and the Impact of Indexing Initiatives," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 1-17, January.
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    Cited by:

    1. Jeffrey Brown, 2002. "Differential Mortality and the Value of Individual Account Retirement Annuities," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 401-446, National Bureau of Economic Research, Inc.
    2. Robert C. Merton & Zvi Bodie & Alan Marcus, 1987. "Pension Plan Integration As Insurance Against Social Security Risk," NBER Chapters, in: Issues in Pension Economics, pages 147-172, National Bureau of Economic Research, Inc.
    3. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 2001. "The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 321-370, National Bureau of Economic Research, Inc.
    4. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 2000. "Mortality Risk, Inflation Risk, and Annuity Products," NBER Working Papers 7812, National Bureau of Economic Research, Inc.
    5. Jeffrey R. Brown & James M. Poterba, 2006. "Household Ownership of Variable Annuities," NBER Chapters, in: Tax Policy and the Economy, Volume 20, pages 163-191, National Bureau of Economic Research, Inc.
    6. 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 2007/21, Center for Financial Studies (CFS).
    7. Horneff, Wolfram J. & Maurer, Raimond H. & Mitchell, Olivia S. & Stamos, Michael Z., 2010. "Variable payout annuities and dynamic portfolio choice in retirement," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(2), pages 163-183, April.
    8. Koijen, R.S.J. & Nijman, T.E. & Werker, B.J.M., 2006. "Optimal Portfolio Choice with Annuitization," Discussion Paper 2006-78, Tilburg University, Center for Economic Research.
    9. Koijen, R.S.J. & Nijman, T.E. & Werker, B.J.M., 2006. "Optimal Portfolio Choice with Annuitization," Other publications TiSEM e0ee89d5-4a5f-4c70-a7ee-d, Tilburg University, School of Economics and Management.

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