Individual Welfare Gains from Deferred Life-Annuities Under Stochastic Mortality

55 Pages Posted: 14 Nov 2010

See all articles by Thomas Post

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

Multiple version iconThere are 2 versions of this paper

Date Written: March 30, 2010

Abstract

At the end of the deferment period a deferred annuity’s policyholder can choose between receiving annuity payouts or the capital accumulated. Considering stochastic mortality improvements, the lump-sum option could be of potential value for the policyholder. Whenever mortality improves less than expected at contract inception, the policyholder will choose the lump-sum and buy an annuity at current market prices. Otherwise, he will retain the more favorable deferred annuity. We use a realistically calibrated life-cycle model and calculate the welfare gains of deferred annuities considering stochastic mortality. Our results are relevant for individual retirement planning, pension system design, and insurance pricing.

Keywords: stochastic mortality, deferred annuitization, retirement decisions, dynamic intertemporal utility maximization

JEL Classification: D14, D81, D91, G11, G22, J11, J26

Suggested Citation

Post, Thomas, Individual Welfare Gains from Deferred Life-Annuities Under Stochastic Mortality (March 30, 2010). Netspar Discussion Paper No. 03/2010-044. Available at SSRN: https://ssrn.com/abstract=1708037 or http://dx.doi.org/10.2139/ssrn.1708037

Thomas Post (Contact Author)

Maastricht University - School of Business and Economics - Department of Finance ( email )

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HOME PAGE: http://www.thomas-post.com

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