New Evidence on the Money's Worth of Individual Annuities / Olivia S. Mitchell, James M. Poterba, Mark J. Warshawsky.

Format:

Book

Author/Creator:

Mitchell, Olivia S.

Contributor:

National Bureau of Economic Research.

Poterba, James M.

Warshawsky, Mark J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6002.

NBER working paper series no. w6002

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

This paper presents new information on the expected present discounted value of payouts on individual life annuities. The annuity we examine is the single premium immediate life annuity, an insurance product that pays out a nominal level sum as long as the covered person lives, in exchange for an initial lump-sum premium. This annuity offers protection against the risk of someone outliving his saving, given uncertainty about longevity. For reasonable estimates of behavioral parameters, we calculate that individual annuities are currently priced so that retirees without bequest motives should find these policies of substantial value in configuring their portfolios to smooth retirement consumption. We also find that the expected present discounted value of payouts, relative to the initial cost of the annuity, has increased over the last decade. These findings bear on the policy debate regarding the role of individual choice and self-reliance in retirement planning.

Notes:

Print version record

April 1997.