Individual Post-Retirement Longevity Risk Management Under Systematic Mortality Risk
42 Pages Posted: 17 Aug 2011
Date Written: August 16, 2011
This paper analyzes an individual’s post retirement longevity risk management strategy allowing for systematic longevity risk, recent product innovations, and product loadings. A complete-markets discrete state model and multi-period simulations of portfolio strategies are used to assess individual longevity insurance product portfolios with differing levels of systematic and idiosyncratic longevity risk. Portfolios include: fixed life annuities, deferred annuities, inflation-indexed annuities, phased withdrawals and recently proposed group self-annuitization (GSA) plans. GSA plans are found to replace even inflation-indexed annuity products when there are loadings on guaranteed life annuity products. With a bequest motive and loadings, coinsurance portfolio strategies with phased withdrawals and GSA’s dominate portfolios with life annuities or deferred annuities.
Keywords: longevity risk, optimal insurance, life annuity, market frictions, group self-annuitization (GSA)
JEL Classification: D14, E21, G22, G23
Suggested Citation: Suggested Citation