The Securitization of Longevity Risk and Its Implications for Retirement Security

Published in Maurer, R., O. Mitchell, and P. Hammond (Eds.) (2014). Recreating Sustainable Retirement: Resilience, Solvency, and Tail Risk. Oxford, UK: Oxford University Press.

Pension Research Council Working Paper No. 2013-22

Posted: 19 Apr 2014 Last revised: 3 Apr 2020

See all articles by Richard D. MacMinn

Richard D. MacMinn

National Chengchi University; The University of Texas

Patrick L. Brockett

University of Texas at Austin - Department of Information, Risk and Operations Management

Jennifer L. Wang

National Chengchi University - Department of Risk Management and Insurance

Yijia Lin

University of Nebraska at Lincoln - Department of Finance

Ruilin Tian

North Dakota State University - Department of Accounting, Finance, and Information Systems

Date Written: October 1, 2013

Abstract

The economic significance of longevity risk for governments, corporations, and individuals has begun to be recognized and quantified. The traditional insurance route for managing this risk has serious limitations due to capacity constraints that are becoming more and more binding. If the 2010 U.S. population lived three years longer than expected then the government would have to set aside 50% of the U.S. 2010 GDP or approximately $7.37 trillion to fully fund that increased social security liability. This is just one way of gauging the size of the risk. Due to the much larger capacity of capital markets more attention is being devoted to transforming longevity risk from its pure risk form to a speculative risk form so that it can be traded in the capital markets. This transformation has implications for governments, corporations and individuals that will be explored here. The analysis will view the management of longevity risk by considering how defined contribution plans can be managed to increase the sustainable length of retirement and by considering how defined benefit plans can be managed to reduce pension risk using longevity risk hedging schemes.

Keywords: Longevity Risk, Retirement, Securitization, Buy-Out, Longevity Swap

Suggested Citation

MacMinn, Richard D. and Brockett, Patrick L. and Wang, Jennifer L. and Lin, Yijia and Tian, Ruilin, The Securitization of Longevity Risk and Its Implications for Retirement Security (October 1, 2013). Published in Maurer, R., O. Mitchell, and P. Hammond (Eds.) (2014). Recreating Sustainable Retirement: Resilience, Solvency, and Tail Risk. Oxford, UK: Oxford University Press., Pension Research Council Working Paper No. 2013-22, Available at SSRN: https://ssrn.com/abstract=2337171 or http://dx.doi.org/10.2139/ssrn.2337171

Richard D. MacMinn (Contact Author)

National Chengchi University ( email )

Taipei
Taiwan

The University of Texas ( email )

2317 Speedway
Austin, TX 78712
United States

Patrick L. Brockett

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States

Jennifer L. Wang

National Chengchi University - Department of Risk Management and Insurance ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623
Taiwan

Yijia Lin

University of Nebraska at Lincoln - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

Ruilin Tian

North Dakota State University - Department of Accounting, Finance, and Information Systems ( email )

Fargo, ND
United States
7012316544 (Phone)
7012316545 (Fax)

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