End-of-life liquidity

Neha Bairoliya, Giovanni Gallipoli and Kathleen McKiernan

No 19739, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Late-life uncertainty and end-of-life (EOL) motives drive demand for death-contingent liquidity, affecting saving, insurance, and labor decisions. Using data on wills, life insurance, and bequest intentions, we document EOL motives across households. Our life-cycle model incorporates precautionary, survivor, and warm-glow motives, exploiting differences between liquid wealth and life insurance to identify preferences. We analyze how these motives interact with Social Security's illiquid annuity and evaluate reforms, including replacing annuity benefits with guaranteed death-contingent payouts or expanding actuarially fair access to life insurance. Both reforms enable portfolio de-risking by shifting resources toward guaranteed EOL liquidity, generating substantial welfare gains for single, low-wealth individuals.

JEL-codes: D31 E21 G11 G51 G52 H55 J26 (search for similar items in EconPapers)
Date: 2024-12
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