Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities

39 Pages Posted: 31 May 2005 Last revised: 26 Oct 2022

See all articles by Ivica Dus

Ivica Dus

University of Frankfurt

Raimond Maurer

Goethe University Frankfurt - Finance Department

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

Date Written: April 2005

Abstract

Retirees must draw down their accumulated assets in an orderly fashion, so as not to exhaust their funds too soon. We compare alternative phased withdrawal strategies to a life annuity benchmark using German data; one particular phased withdrawal rule seems attractive, as it offers relatively low expected shortfall risk, good expected payouts for the retiree during his life, and some bequest potential; results are similar for the US case. Delayed annuitization may also appeal, as it offers higher expected benefits with lower expected shortfalls. Requiring unisex mortality tables in annuity pric-ing raises women's risks under a phased withdrawal program.

Suggested Citation

Dus, Ivica and Maurer, Raimond and Mitchell, Olivia S., Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities (April 2005). NBER Working Paper No. w11271, Available at SSRN: https://ssrn.com/abstract=705591

Ivica Dus

University of Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Raimond Maurer

Goethe University Frankfurt - Finance Department ( email )

Theodor-W.-Adorno-Platz 3
House of Finance
Frankfurt, 60323
Germany

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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