I have written before about the fact that so few people take annuities upon their retirement. While several reasons have been proposed, the literature has dealt with them in isolation, which is not very useful.
Svetlana Pashchenko addresses all suggestion in one swoop by using a quantitative life-cycle model with uncertain lifetime and medical expenses, bequest motives and minimum guaranteed consumption. Calibrated to the US, the model determines four equally important factor that prevent annuities from becoming popular: 1) pre-annuitized wealth (pensions), 2) minimum annuity size, 3) illiquid housing wealth, and 4) bequest motives. Pricing of annuities, interestingly, is not a factor. Adverse selection is responsible for making them more expensive than actuarially fair, while it decreases annuity demand for the poor, it increases it for the rich (as they know they will live longer and have cash to buy annuities). Note that 3) is another puzzle to me, as reverse mortgages are also rare, and they would render housing wealth liquid.
Svetlana Pashchenko addresses all suggestion in one swoop by using a quantitative life-cycle model with uncertain lifetime and medical expenses, bequest motives and minimum guaranteed consumption. Calibrated to the US, the model determines four equally important factor that prevent annuities from becoming popular: 1) pre-annuitized wealth (pensions), 2) minimum annuity size, 3) illiquid housing wealth, and 4) bequest motives. Pricing of annuities, interestingly, is not a factor. Adverse selection is responsible for making them more expensive than actuarially fair, while it decreases annuity demand for the poor, it increases it for the rich (as they know they will live longer and have cash to buy annuities). Note that 3) is another puzzle to me, as reverse mortgages are also rare, and they would render housing wealth liquid.
Hiç yorum yok:
Yorum Gönder