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

Martijn de Werd, Bertrand Achou and Ki Wai Chau

Cahiers de recherche / Working Papers from Institut sur la retraite et l'épargne / Retirement and Savings Institute

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.

Keywords: Life-Cycle Investment; Life Insurance; Annuities; Savings; Retirement Portfolio; Couple Dynamics; Bequest Motives. (search for similar items in EconPapers)
JEL-codes: C61 D14 D15 G11 G22 G51 G52 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:rsi:irersi:25

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