The annuity puzzle remains a puzzle

Kim Peijnenburg, Theo Nijman and Bas J.M. Werker

Journal of Economic Dynamics and Control, 2016, vol. 70, issue C, 18-35

Abstract: We examine incomplete annuity menus, background risk, bequest motives, and default risk as possible drivers of divergence from full annuitization. Contrary to what is often suggested in the literature, we find that full annuitization remains optimal if saving is possible after retirement. This holds irrespective of whether real or only nominal annuities are available. Whenever liquidity is desired, individuals save sizeable amounts out of their annuity income to smooth consumption shocks. Similarly, adding equity-linked annuities to the menu does not increase welfare significantly, since individuals can invest in stocks in order to get the desired equity exposure.

Keywords: Asset allocation; Life-cycle portfolio choice; Annuity; Savings (search for similar items in EconPapers)
JEL-codes: D14 D91 G11 G23 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:70:y:2016:i:c:p:18-35

DOI: 10.1016/j.jedc.2016.05.023

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