Annuitized Wealth and Post-Retirement Saving

Abstract

We introduce a tractable model of post-retirement saving behavior in which households have a precautionary motive arising from uninsured health status risks. The model distinguishes between annuitized and non-annuitized wealth, emphasizes the importance of asset composition in determining optimal household behavior, and includes an extension allowing late-in-life exchange transactions among relatives. We consider three puzzles in micro data – rising cohort average wealth of retirees, lack of demand for market annuities, and the relative scarcity of bequests – and show that our model can provide intuitive explanations for each.