Determining the Optimum Guarantee Period for a One-Life Retirement Annuity

Gopi Goda and Colin Ramsay

North American Actuarial Journal, 2007, vol. 11, issue 3, 100-112

Abstract: We consider a risk averse retiree from a defined contribution plan who decides to purchase a onelife annuity with a guarantee period. Given the retiree has a bequest motive, we focus on the problem of determining the optimum length of the guarantee period. Assuming the retiree’s bequest function is proportional to his or her utility function, we determine necessary and/or sufficient conditions under which the retiree would choose an annuity with (i) no guarantee period, (ii) the maximum guarantee period, or (iii) an intermediate guarantee period.

Date: 2007
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DOI: 10.1080/10920277.2007.10597469

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