Evaluating the Advanced Life Deferred Annuity - An Annuity People Might Actually Buy

Posted: 8 Mar 2010

See all articles by Guan Gong

Guan Gong

University of Texas at Austin - Department of Economics

Anthony Webb

Boston College - Center for Retirement Research

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2007

Abstract

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.

Suggested Citation

Gong, Guan and Webb, Anthony, Evaluating the Advanced Life Deferred Annuity - An Annuity People Might Actually Buy (September 1, 2007). Available at SSRN: https://ssrn.com/abstract=1545880

Guan Gong

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Anthony Webb (Contact Author)

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

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