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Can the Private Annuity Market Provide Secure Retirement Income?

  • Allison Schrager
  • G. A. Mackenzie

Annuity premiums are often assumed to be constant, although they can be expected to vary with the yield curve. Variations in premiums will become an important public policy issue as defined-contribution (DC) pension plans play an increasingly prominent role in providing retirement income. As DC plan holders retire, many will annuitize at least a part of their account balances. In the absence of current data on annuity prices, the paper relies on U.S. Treasury interest rate data to simulate the impact of interest rate variation on annuity premiums. For a spectrum of feasible interest rates, the variation in retirement income is not negligible.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/230.

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Length: 20
Date of creation: 01 Dec 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/230
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  1. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 135-54, February.
  2. Amy Finkelstein & James Poterba, 2000. "Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market," NBER Working Papers 8045, National Bureau of Economic Research, Inc.
  3. Irena Dushi & Anthony Webb, 2004. "Annuitization: Keeping Your Options Open," Working Papers, Center for Retirement Research at Boston College wp2004-4, Center for Retirement Research, revised Mar 2004.
  4. James M. Poterba, 1997. "The History of Annuities in the United States," NBER Working Papers 6001, National Bureau of Economic Research, Inc.
  5. Martin Feldstein & Elena Ranguelova, 2001. "Individual Risk in an Investment-Based Social Security System," American Economic Review, American Economic Association, vol. 91(4), pages 1116-1125, September.
  6. Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
  7. Andrew A. Samwick & Jonathan Skinner, 2004. "How Will 401(k) Pension Plans Affect Retirement Income?," American Economic Review, American Economic Association, vol. 94(1), pages 329-343, March.
  8. Jeffrey R. Brown, 1999. "Private Pensions, Mortality Risk, and the Decision to Annuitize," NBER Working Papers 7191, National Bureau of Economic Research, Inc.
  9. Ranguelova, Elena & Feldstein, Martin, 2001. "Individual Risk in an Investment-Based Social Security System," Scholarly Articles 2797440, Harvard University Department of Economics.
  10. David Blake, 1999. "Annuity Markets: Problems and Solutions," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 24(3), pages 358-375, July.
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