What Makes a Better Annuity?

32 Pages Posted: 16 Mar 2011

See all articles by Jason S. Scott

Jason S. Scott

Financial Engines, Inc.

John G. Watson

Financial Engines, Inc.; Stanford Graduate School of Business

Wei-Yin Hu

Financial Engines, Inc.

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Date Written: February 3, 2011

Abstract

Given costly and limited annuity products, we investigate how annuity market innovation could improve participation and increase individual welfare. We find that participation gains are most likely with new annuity products that concentrate on late-life payouts. Our welfare analysis suggests that annuity innovation should focus on adding survival contingencies to assets commonly held by individuals. Finally, in a complete market setting, we find demand only for those annuity contracts with a significant time gap between purchase and payout (a rarity in current contracts). Overall, our analysis indicates ample opportunity for innovation to spur annuity demand and improve individual welfare.

Suggested Citation

Scott, Jason S. and Watson, John G. and Hu, Wei-Yin, What Makes a Better Annuity? (February 3, 2011). Journal of Risk and Insurance, Vol. 78, Issue 1, pp. 213-244, 2011. Available at SSRN: https://ssrn.com/abstract=1783382 or http://dx.doi.org/10.1111/j.1539-6975.2010.01381.x

Jason S. Scott (Contact Author)

Financial Engines, Inc. ( email )

1050 Enterprise Way, 3rd Floor
Sunnyvale, CA 94089
United States

John G. Watson

Financial Engines, Inc. ( email )

1050 Enterprise Way
Sunnyvale, CA 94089
United States

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305
United States

Wei-Yin Hu

Financial Engines, Inc. ( email )

1050 Enterprise Way, 3rd Floor
Sunnyvale, CA 94089
United States

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