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Would you prefer your retirement income to depend on your life expectancy?

Antoine Bommier and Hélène Schernberg

Journal of Economic Theory, 2021, vol. 191, issue C

Abstract: We study the demand for retirement income of agents who gradually learn about their life expectancy. For a given expected budget, temporally risk-averse agents prefer that pension levels respond to incoming information about life expectancy rather than being fixed ex-ante. Indeed, this offers a hedging strategy that couples shorter lives with higher consumption levels, and longer lives with lower consumption levels. A calibrated life-cycle model provides an order of magnitude of the effects at play.

Keywords: Pensions; Longevity risk; Risk aversion; Recursive preferences (search for similar items in EconPapers)
JEL-codes: D15 G52 H55 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jet.2020.105126

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