Life Cycle Annuity Valuation

39 Pages Posted: 9 Jun 2004 Last revised: 20 Aug 2010

See all articles by B. Douglas Bernheim

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 1984


In this paper, we argue that actuarial valuation of annuity benefit streams is theoretically inconsistent with the assumption of pure lifecycle motives. Instead, we show that the simple discounted value of future benefits (ignoring the possibility of death) is often a good approximation to the relevant concept of value. This observation motivates a re-examination of existing empirical evidence concerning the effects of Social Security on personal savings, retirement, and the distribution of wealth, as well as the proper computation of age-wealth profiles. The conceptual points raised here are also relevant for evaluating the relative merits of wage and consumption taxes. In each case,we argue that the use of simple, rather than actuarial discounting of survival-contingent income streams dramatically alters the conclusions of previous studies.

Suggested Citation

Bernheim, B. Douglas, Life Cycle Annuity Valuation (December 1984). NBER Working Paper No. w1511. Available at SSRN:

B. Douglas Bernheim (Contact Author)

Stanford University - Department of Economics ( email )

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