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Annuitized Wealth and Post-Retirement Saving

Author

Listed:
  • John Laitner
  • Daniel Silverman
  • Dmitriy Stolyarov

Abstract

We introduce a tractable model of post-retirement saving behavior in which households have a precautionary motive arising from uninsured health status risks. The model distinguishes between annuitized and non-annuitized wealth, emphasizes the importance of asset composition in determining optimal household behavior, and includes an extension allowing late-in-life exchange transactions among relatives. We consider three puzzles in micro data - rising cohort average wealth of retirees, lack of demand for market annuities, and the relative scarcity of bequests - and show that our model can provide intuitive explanations for each.

Suggested Citation

  • John Laitner & Daniel Silverman & Dmitriy Stolyarov, 2014. "Annuitized Wealth and Post-Retirement Saving," NBER Working Papers 20547, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20547
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    References listed on IDEAS

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    1. Shlomo Benartzi & Alessandro Previtero & Richard H. Thaler, 2011. "Annuitization Puzzles," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 143-164, Fall.
    2. Modigliani, Franco, 1986. "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic Review, American Economic Association, vol. 76(3), pages 297-313, June.
    3. Laitner, John & Ohlsson, Henry, 2001. "Bequest motives: a comparison of Sweden and the United States," Journal of Public Economics, Elsevier, vol. 79(1), pages 205-236, January.
    4. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    5. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-391, April.
    6. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, February.
    7. Michael D. Hurd & Susann Rohwedder, 2009. "The Level and Risk of Out-of-Pocket Health Care Spending," Working Papers wp218, University of Michigan, Michigan Retirement Research Center.
    8. Horioka, C.Y. & Fujisaki, H. & Watanabe, W. & Kouno, T., 2000. "Are Americans more Altruistic than the Japanese Comparison of Saving and Bequest Motives," ISER Discussion Paper 0487, Institute of Social and Economic Research, Osaka University.
    9. Sven H. Sinclair & Kent A. Smetters, 2004. "Health Shocks and the Demand for Annuities: Technical Paper 2004-09," Working Papers 15868, Congressional Budget Office.
    10. Jingshu Wang, 2010. "Motives for Intergenerational Transfers: New Test for Exchange," American Journal of Economics and Sociology, Wiley Blackwell, vol. 69(2), pages 802-822, April.
    11. Steven A. Sass, 2012. "Should You Buy an Annuity from Social Security?," Issues in Brief ib2012-10, Center for Retirement Research, revised May 2012.
    12. Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1.
    13. Laitner, John & Silverman, Dan, 2012. "Consumption, retirement and social security: Evaluating the efficiency of reform that encourages longer careers," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 615-634.
    14. John Laitner, 1988. "Bequests, Gifts, and Social Security," Review of Economic Studies, Oxford University Press, vol. 55(2), pages 275-299.
    15. Benjamin M. Friedman & Mark J. Warshawsky, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 135-154.
    16. Felix Reichling & Kent Smetters, 2013. "Optimal Annuitization with Stochastic Mortality Probabilities: Working Paper 2013-05," Working Papers 44374, Congressional Budget Office.
    17. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    18. John Karl Scholz & Ananth Seshadri, 2009. "What Replacement Rates Should Households Use?," Working Papers wp214, University of Michigan, Michigan Retirement Research Center.
    19. David A. Wise, 2011. "Explorations in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise09-2.
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    Cited by:

    1. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Medicaid Insurance in Old Age," American Economic Review, American Economic Association, vol. 106(11), pages 3480-3520, November.
    2. John Ameriks & Joseph S. Briggs & Andrew Caplin & Matthew D. Shapiro & Christopher Tonetti, 2015. "Long-Term-Care Utility and Late-in-Life Saving," NBER Working Papers 20973, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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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