Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection

Vanya Horneff, Raimond Maurer, Olivia Mitchell and Ralph Rogalla
Additional contact information
Vanya Horneff: Goethe University
Raimond Maurer: Goethe University
Ralph Rogalla: Goethe University

Working Papers from University of Michigan, Michigan Retirement Research Center

Abstract: We evaluate lifecycle consumption and portfolio allocation patterns resulting from access to Guaranteed Minimum Withdrawal Benefit (GMWB) variable annuities, one of the most rapidly-growing financial innovations over the last two decades. A key feature of these products is that they offer access to equity investments with downside protection, hedging of longevity risk, and partially-refundable premiums. Welfare rises since policyholders exercise the product’s flexibility by taking withdrawals and dynamically adjusting their portfolios and consumption streams. Consistent with observed behavior, differences across individuals’ cash out and annuitization patterns result from variations in realized equity market returns and labor income trajectories.

Pages: 43 pages
Date: 2013-06
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Optimal life cycle portfolio choice with variable annuities offering liquidity and investment downside protection (2015)
Working Paper: Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection (2013)
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