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Living Longer in High Longevity Risk

Rachel Wingenbach, Jong-Min Kim and Hojin Jung
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Rachel Wingenbach: University of Minnesota-Morris
Jong-Min Kim: University of Minnesota-Morris
Hojin Jung: Jeonbuk National University

JODE - Journal of Demographic Economics, 2020, vol. 86, issue 1, 47-86

Abstract: There is considerable uncertainty regarding changes in future mortality rates. This article investigates the impact of such longevity risk on discounted government annuity benefits for retirees. It is critical to forecast more accurate future mortality rates to improve our estimation of an expected annuity payout. Thus, we utilize the Lee–Carter model, which is well-known as a parsimonious dynamic mortality model. We find strong evidence that female retirees are likely to receive more public lifetime annuity than males in the USA, which is associated with systematic mortality rate differences between genders. A cross-country comparison presents that the current public annuity system would not fully cover retiree's longevity risk. Every additional year of life expectancy leaves future retirees exposed to high risk, arising from high volatility of lifetime annuities. Also, because the growth in life expectancy is higher than the growth of expected public pension, there will be a financial risk to retirees.

Keywords: Lee-Carter model; Longevity risk; Mortality rate (search for similar items in EconPapers)
JEL-codes: J11 J18 (search for similar items in EconPapers)
Date: 2020-03-01
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