Putting the pension back in 401(k) retirement plans: Optimal versus default deferred longevity income annuities

Vanya Horneff, Raimond Maurer and Olivia Mitchell

Journal of Banking & Finance, 2020, vol. 114, issue C

Abstract: The US Treasury recently permitted deferred longevity income annuities to be included in pension plan menus as a default payout solution, yet little research has investigated whether more people should convert some of the $18 trillion they hold in employer-based defined contribution plans into lifelong income streams. We investigate this innovation using a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations. Our welfare analysis shows that defaulting a modest portion of retirees’ 401(k) assets (over a threshold) is an attractive way to enhance retirement security, enhancing welfare by up to 20% of retiree plan accruals.

Keywords: Life cycle saving; Household finance; Annuity; Longevity risk; 401(k) plan; Retirement (search for similar items in EconPapers)
JEL-codes: D14 D91 G11 G22 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:114:y:2020:i:c:s0378426620300510

DOI: 10.1016/j.jbankfin.2020.105783

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