Accounting for non-annuitization

Svetlana Pashchenko

No WP-2010-03, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Why don't people buy annuities? Several explanations have been provided by the previous literature: large fraction of preannuitized wealth in retirees' portfolios; adverse selection; bequest motives; and medical expense uncertainty. This paper uses a quantitative model to assess the importance of these impediments to annuitization and also studies three newer explanations: government safety net in terms of means-tested transfers; illiquidity of housing wealth; and restrictions on minimum amount of investment in annuities. This paper shows that quantitatively the last three explanations play a big role in reducing annuity demand. The minimum consumption floor turns out to be important to explain the lack of annuitization, especially for people in lower income quintiles, who are well insured by this provision. The minimum annuity purchase requirement involves big upfront investment and is binding for many, especially if housing wealth cannot be easily annuitized. Among the traditional explanations, preannuitized wealth has the largest quantitative contribution to the annuity puzzle.

Keywords: Accounting (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://chicagofed.org/digital_assets/publications/ ... s/2010/wp2010_03.pdf (application/pdf)

Related works:
Journal Article: Accounting for non-annuitization (2013)
Working Paper: Accounting for non-annuitization (2012)
Working Paper: Accounting for non-annuitization (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:wp-2010-03

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese ().