A Generalization of Yaari's Result on Annuitization with Optimal Retirement

Posted: 2 Aug 2015 Last revised: 10 Nov 2015

See all articles by Seyoung Park

Seyoung Park

Nottingham University Business School

Date Written: July 31, 2015

Abstract

In this paper we generalize the following result of Yaari (1965) on annuitization with an agent's optimal retirement: it is optimal for individuals to annuitize all of their wealth in the absence of bequest motive. We have other results that refine or extend the result of Yaari (1965). Full annuitization can be viewed as an American-type option that allows an economic agent to exchange the value of labor income with the extra leisure that is brought about by annuitizing all of her wealth. When the agent's wealth is above a certain wealth threshold, annuitization is triggered, otherwise it is not. Accordingly, wealth plays a key role in controlling the distance to full annuitization.

Keywords: optimal annuitization, critical wealth level, option, leisure

JEL Classification: C61, D91, E21, G11

Suggested Citation

Park, Seyoung, A Generalization of Yaari's Result on Annuitization with Optimal Retirement (July 31, 2015). Economics Letters, Vol. 137, 2015, Available at SSRN: https://ssrn.com/abstract=2638295 or http://dx.doi.org/10.2139/ssrn.2638295

Seyoung Park (Contact Author)

Nottingham University Business School ( email )

Nottingham University Business School
Jubilee Campus
Nottingham
United Kingdom
+44-7927-494518 (Phone)

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