Abstract

http://ssrn.com/abstract=1578301
 
 

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The Annuity Puzzle Remains a Puzzle


Kim Peijnenburg


Bocconi University - Department of Finance; Netspar; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Theo Nijman


Tilburg University - Center and Faculty of Economics and Business Administration

Bas J. M. Werker


Tilburg University - Center for Economic Research (CentER)

July 26, 2016

Journal of Economic Dynamics and Control, Forthcoming

Abstract:     
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.

Number of Pages in PDF File: 33

Keywords: Asset allocation, retirement, life-cycle portfolio choice, annuity, savings

JEL Classification: D14, D91, G11, G23


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Date posted: March 30, 2010 ; Last revised: July 27, 2016

Suggested Citation

Peijnenburg, Kim and Nijman, Theo and Werker, Bas J. M., The Annuity Puzzle Remains a Puzzle (July 26, 2016). Journal of Economic Dynamics and Control, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1578301 or http://dx.doi.org/10.2139/ssrn.1578301

Contact Information

Kim Peijnenburg (Contact Author)
Bocconi University - Department of Finance ( email )
Via Roentgen 1
Milano, MI 20136
Italy
Netspar ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )
Via Roentgen 1
Milan, 20136
Italy
Theo E. Nijman
Tilburg University - Center and Faculty of Economics and Business Administration ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2342 (Phone)
+31 13 466 3280 (Fax)
Bas J.M. Werker
Tilburg University - Center for Economic Research (CentER) ( email )
Econometrics and Finance Group
5000 LE Tilburg
Netherlands
Feedback to SSRN


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