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Longevity Annuity: An Annuity for Everyone?

Jason S. Scott
Financial Engines, Inc.


June 2007


Abstract:     
As of 2005, individuals had an estimated $7.4 trillion invested in IRAs and employer-sponsored retirement accounts. Given these investments, many retirees will face the difficult problem of turning a pool of assets into a stream of retirement income. Purchasing an immediate annuity is a common recommendation for retirees looking to maximize retirement spending. However, the vast majority of retirees are unwilling to annuitize all of their assets. This paper demonstrates that a new type of annuity, a longevity annuity, is optimal for retirees unwilling to fully annuitize. For a typical retiree, allocating 10%-15% of wealth to a longevity annuity creates spending benefits comparable to an immediate annuity allocation of 60% or more.

Keywords: Annuity, annuitization, pensions, longevity risk, insurance, Social Security

JEL Classifications: D11, D91, E21, H55, J14, J26

Working Paper Series

Date posted: June 11, 2007 ; Last revised: June 15, 2007

Suggested Citation

Scott, Jason S., Longevity Annuity: An Annuity for Everyone? (June 2007). Available at SSRN: http://ssrn.com/abstract=992423


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Contact Information

Jason S. Scott (Contact Author)
Financial Engines, Inc. ( email )
1804 Embarcadero Road
Palo Alto, CA 94303
United States
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