Deferred Annuities and Strategic Asset Allocation

Wolfram J. Horneff and Raimond H. Maurer
Additional contact information
Wolfram J. Horneff: Goethe University
Raimond H. Maurer: Goethe University

Working Papers from University of Michigan, Michigan Retirement Research Center

Abstract: We derive the optimal portfolio choice and consumption pattern over the lifecycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to deferred annuities. Deferred annuities offer a hedge against mortality risk and provide similar benefits as Social Security. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life and to earn the equity premium. We find a marginal difference between a strategy involving deferred annuities and one where the investor can purchase immediate life annuities.

Pages: 28 pages
Date: 2008-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp178.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp178.pdf [301 Moved Permanently]--> https://mrdrc.isr.umich.edu/publications/Papers/pdf/wp178.pdf)

Related works:
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:mrr:papers:wp178

Access Statistics for this paper

More papers in Working Papers from University of Michigan, Michigan Retirement Research Center P.O. Box 1248, Ann Arbor, MI 48104. Contact information at EDIRC.
Bibliographic data for series maintained by MRRC Administrator ().