Optimal annuitization under stochastic interest rates

被引:0
|
作者
Dillschneider, Yannick [1 ]
Maurer, Raimond [2 ]
Schober, Peter [2 ]
机构
[1] Univ Amsterdam, Amsterdam Sch Econ, Roetersstr 11, NL-1018 WB Amsterdam, Netherlands
[2] Goethe Univ, Finance Dept, Theodor W Adorno Pl 3, D-60323 Frankfurt, Germany
关键词
Annuity risk; interest rate risk; deferred life annuities; dynamic portfolio choice; D15; G11; G51; G52; J26; DYNAMIC PORTFOLIO CHOICE; CYCLE ASSET ALLOCATION; LIFE-CYCLE; RISK-AVERSION; CONSUMPTION; INSURANCE; ANNUITIES; INVESTMENT; MORTALITY; INCOME;
D O I
10.1017/asb.2024.23
中图分类号
F [经济];
学科分类号
02 ;
摘要
The decision about when and how much to annuitize is an important element of the retirement planning of most individuals. Optimal annuitization strategies depend on the individual's exposure to annuity risk, meaning the possibility of meeting unfavorable personal and market conditions at the time of the annuitization decision. This article studies optimal annuitization strategies within a life-cycle consumption and portfolio choice model, focusing on stochastic interest rates as an important source of annuity risk. Closing a gap in the existing literature, our numerical results across different model variants reveal several typical structural effects of interest rate risk on the annuitization decision, which may however vary depending on preference specifications and alternative investment opportunities: When allowing for gradual annuitization, annuity risk is temporally diversified by spreading annuity purchases over the whole pre-retirement period, with annuity market participation starting earlier in the life cycle and becoming more extensive with increasing interest rate risk. Ruling out this temporal diversification possibility, as embedded in many institutional settings, incurs significant welfare losses, which are increasing with higher interest rate risk, together with larger overall demand for annuitization.
引用
收藏
页码:626 / 651
页数:26
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