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Putting the pension back in 401(k) retirement plans: Optimal versus default longevity income annuities

Vanya Horneff, Raimond Maurer and Olivia Mitchell

No 607, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: A recent US Treasury regulation allowed deferred longevity income annuities to be included in pension plan menus as a default payout solution, yet little research has investigated whether more people should convert some of the $15 trillion they hold in employer-based defined contribution plans into lifelong income streams. We investigate this innovation using a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations. Our welfare analysis shows that defaulting a small portion of retirees' 401(k) assets (over a threshold) is an attractive way to enhance retirement security, enhancing welfare by up to 20% of retiree plan accruals.

Keywords: life cycle saving; household finance; annuity; longevity risk; 401(k) plan; retirement (search for similar items in EconPapers)
JEL-codes: G11 G22 D14 D91 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-age and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:607

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