The Annuity Puzzle: How Big is the Free Lunch Being Left on the Table?

4 Pages Posted: 10 Jul 2019

Date Written: October 16, 2018

Abstract

The looming Savings Crisis is usually attributed to people either not saving enough or making poor investment choices, but we believe there's another culprit. Many investors could benefit from a 'free lunch' of pooling their longevity risk with others, but due to market inefficiencies, they do not. We quantify the size of this missed opportunity gap using an Expected Utility framework to compare self-managed savings versus the purchase of a zero-fee annuity.

Keywords: savings crisis, market inefficiency, expected utility, zero-fee annuity, longevity risk, long-term savings, self-managed savings

JEL Classification: B12, B16, B20, C00, C10, C11, C50, C57, C73, D03, D81, D83, E00, G00, G02, G11, G12, G14, G17, G23

Suggested Citation

White, James and Haghani, Victor, The Annuity Puzzle: How Big is the Free Lunch Being Left on the Table? (October 16, 2018). Available at SSRN: https://ssrn.com/abstract=3267525 or http://dx.doi.org/10.2139/ssrn.3267525

James White (Contact Author)

Elm Partners ( email )

1630 Willow View Drive
PO Box 1417
Wilson, WY 83014

Victor Haghani

Elm Partners ( email )

1630 Willow View Drive
PO Box 1417
Wilson, WY 83014

HOME PAGE: http://www.elmfunds.com

Register to save articles to
your library

Register

Paper statistics

Downloads
19
Abstract Views
106
PlumX Metrics