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Annuity Risk: Volatility and Inflation Exposure in Payments from Immediate Life Annuities

Author

Listed:
  • Laura Ballotta

    (Department of Actuarial Science and Statistics, City University London)

  • Steven Haberman

    (Department of Actuarial Science and Statistics, City University London)

Abstract

Some researchers have raised concerns about significant volatility in initial payments from fixed immediate life annuities and the subsequent inflation risk during the retirement period. This paper investigates these concerns using recent high frequency data. It finds that while there is significant volatility in initial payments from nominal fixed annuities, phased purchases of fixed annuities can reduce their volatility. It also finds that an inflation-adjusted annuity may address both the volatility and inflation risk problems. The results are applicable to current discussions about Social Security and trends toward the defined contribution type of pension plan.

Suggested Citation

  • Laura Ballotta & Steven Haberman, 2002. "Annuity Risk: Volatility and Inflation Exposure in Payments from Immediate Life Annuities," CeRP Working Papers 24, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  • Handle: RePEc:crp:wpaper:24
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    More about this item

    Keywords

    annuities;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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