Individual Post-Retirement Longevity Risk Management Under Systematic Mortality Risk

Hanewald, Katja; Piggott, John; Sherris, Michael

Individual Post-Retirement Longevity Risk Management Under Systematic Mortality Risk

UNSW Australian School of Business Research Paper No. 2011ACTL10

42 Pages Posted: 17 Aug 2011

See all articles by Katja Hanewald

Katja Hanewald

UNSW Sydney - School of Risk & Actuarial Studies and ARC Centre of Excellence in Population Ageing Research (CEPAR)

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics

Michael Sherris

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies; UNSW Australia Business School

Date Written: August 16, 2011

Abstract

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

Hanewald, Katja and Piggott, John and Sherris, Michael, Individual Post-Retirement Longevity Risk Management Under Systematic Mortality Risk (August 16, 2011). UNSW Australian School of Business Research Paper No. 2011ACTL10. Available at SSRN: https://ssrn.com/abstract=1910961