Articles

The Annuity Puzzle Remains a Puzzle

K. PEIJNENBURG, Theo NIJMAN, Bas WERKER

Journal of Economic Dynamics and Control

septembre 2016, vol. 70, pp.18-35

Départements : Finance, GREGHEC (CNRS)

Mots clés : Asset allocation; Life-cycle portfolio choice; Annuity; Savings

http://www.sciencedirect.com/science/article/pii/S0165188916301002


We examine incomplete annuity menus, background risk, bequest motives, and default risk as possible drivers of divergence from full annuitization. Contrary to what is often suggested in the literature, we find that full annuitization remains optimal if saving is possible after retirement. This holds irrespective of whether real or only nominal annuities are available. Whenever liquidity is desired, individuals save sizeable amounts out of their annuity income to smooth consumption shocks. Similarly, adding equity-linked annuities to the menu does not increase welfare significantly, since individuals can invest in stocks in order to get the desired equity exposure


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