Evaluating the Advanced Life Deferred AnnuityAn annuity people might actually buy

Evaluating the Advanced Life Deferred AnnuityAn annuity people might actually buy

Evaluating the Advanced Life Deferred Annuity

An annuity people might actually buy

Gong

Guan

Gong, Guan

Author

Author

Webb

Anthony

Webb, Anthony

Author

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College20072007monographic

Chestnut Hill, Mass.

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

2007

2007

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

Although annuities provide longevity insurance that should, in theory, be attractive to risk-averse households facing an uncertain lifespan, rates of voluntary annuitization remain extremely low. We evaluate a proposed annuity product, the Advanced Life Deferred Annuity, an annuity purchased at retirement, providing an income commencing in advanced old age. Using numerical optimization techniques, we show that this product would provide a substantial proportion of the longevity insurance provided by an immediate annuity, at a small fraction of the cost. At plausible levels of actuarial unfairness, households should prefer it to both immediate and postponed annuitization, and an optimal decumulation of unannuitized wealth. We show that few households would suffer significant losses were it used as a 401(k) plan default.

Guan Gong and Anthony Webb.

CRR WP2007-15

CRR WP2007-15

CRR WP

2007-15

http://crr.bc.edu/images/stories/Working_Papers/wp_2007-15.pdf

MChBEnglisheng

MChB

Englisheng

English

eng