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End-of-life liquidity

Author

Listed:
  • Bairoliya, Neha
  • Gallipoli, Giovanni
  • McKiernan, Kathleen

Abstract

Late-life uncertainty and end-of-life (EOL) motives drive demand for death-contingent liquidity, affecting saving, insurance, and labor decisions. Using data on wills, life insurance, and bequest intentions, we document EOL motives across households. Our life-cycle model incorporates precautionary, survivor, and warm-glow motives, exploiting differences between liquid wealth and life insurance to identify preferences. We analyze how these motives interact with Social Security's illiquid annuity and evaluate reforms, including replacing annuity benefits with guaranteed death-contingent payouts or expanding actuarially fair access to life insurance. Both reforms enable portfolio de-risking by shifting resources toward guaranteed EOL liquidity, generating substantial welfare gains for single, low-wealth individuals.

Suggested Citation

  • Bairoliya, Neha & Gallipoli, Giovanni & McKiernan, Kathleen, 2024. "End-of-life liquidity," CEPR Discussion Papers 19739, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19739
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    File URL: https://cepr.org/publications/DP19739
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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