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The Annuitization of Americans' Resources: A Cohort Analysis

  • Alan J. Auerbach
  • Jagadeesh Gokhale
  • Laurence J. Kotlikoff
  • John Sabelhaus
  • David N. Weil

This paper constructs a unique cohort data set to study the changes since 1960 in the share of Americans' resources that are annuitized. Understanding these changes is important because the larger this share, the more cohorts are likely to consume and the less they are likely to bequeath. Hence, the degree of annuitization affects national saving as well as the transmission of inequality over time. Our findings are striking. Although the annuitized share of resources of younger Americans declined slightly between 1960 and 1990, it increased dramatically for older Americans. It doubled for older men and quadrupled for older women. Since the elderly have much higher mortality probabilities than do the young, their degree of annuitization is much more important for aggregate bequests and saving. According to our estimates, aggregate U.S. bequests would now be 66 percent larger had the post-1960 increase in annuitization not occurred. In addition, U.S. national saving would likely be substantially larger than is currently the case.

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File URL: http://www.nber.org/papers/w5089.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5089.

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Date of creation: Apr 1995
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Publication status: published as Kotlikoff, Laurence J. (ed.) Essays on Saving, Bequests, Altruism, and Life-Cycle Planning. 2001.
Handle: RePEc:nbr:nberwo:5089
Note: PE
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  1. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 315-407.
  2. Louise Sheiner & David N. Weil, 1992. "The Housing Wealth of the Aged," NBER Working Papers 4115, National Bureau of Economic Research, Inc.
  3. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts: A Meaningful Alternative to Deficit Accounting," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 55-110 National Bureau of Economic Research, Inc.
  4. Abel, Andrew B, 1985. "Precautionary Saving and Accidental Bequests," American Economic Review, American Economic Association, vol. 75(4), pages 777-91, September.
  5. Auerbach, A.J. & Kotlikoff, L.J. & Weil, D.N., 1992. "The Increasing Annuitization of the Elderly - Estimates and Implications for Intergenerational Transfers, Inequality and National Saving," Papers 6, Boston University - Department of Economics.
  6. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
  7. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-77, June.
  8. Laurence J. Kotlikoff & John B. Shoven & Avia Spivak, 1984. "The Impact of Annuity Insurance on Savings and Inequality," NBER Working Papers 1403, National Bureau of Economic Research, Inc.
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