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Optimal Investments in Annuities and Life Insurance for Retired Couples: The Role of Side Bequest Motives

Author

Listed:
  • Martijn de Werd
  • Bertrand Achou
  • Ki Wai Chau

Abstract

Recent empirical evidence shows that a significant amount of wealth is bequeathed at the death of the first spouse. We study both theoretically and quantitatively how couples’ retirement portfolio of annuities and life insurance is affected by such side bequests. We show that life-contingent products allow couples to smooth their side bequests as they enable to make the latter independent of which spouse dies first. We also show that side bequests reduce the wealth left to the surviving spouse while raising the demand for life insurance (or reducing the demand for annuities). Quantitatively, we find that side bequests have a sizable impact on the demand for annuities: annuity participation is 28 percentage points lower for married women and 41 percentage points lower for married men. Finally, we find that side bequests modify the distribution of welfare gains from having access to life-contingent products and that incorrectly omitting side bequest motives in the design of optimal portfolio strategies comes at large welfare costs.

Suggested Citation

  • Martijn de Werd & Bertrand Achou & Ki Wai Chau, 2026. "Optimal Investments in Annuities and Life Insurance for Retired Couples: The Role of Side Bequest Motives," Cahiers de recherche / Working Papers 25, Institut sur la retraite et l'épargne / Retirement and Savings Institute.
    • Handle: RePEc:rsi:irersi:25
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    File URL: https://ire.hec.ca/wp-content/uploads/2026/07/cahier_IRE_25_annuities_life_insurance_retired_couples_bequest_motives.pdf
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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G52 - Financial Economics - - Household Finance - - - Insurance

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