Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities versus Phased Withdrawal Plans.

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dc.contributor.author Dus, Ivica
dc.contributor.author Maurer, Raimond
dc.contributor.author Mitchell, Olivia S.
dc.date.accessioned 2007-04-25T16:27:48Z
dc.date.available 2007-04-25T16:27:48Z
dc.date.issued 2003-11
dc.identifier.uri http://hdl.handle.net/2027.42/50556
dc.description.abstract How might retirees consider deploying the retirement assets accumulated in a defined contribution pension plan? One possibility would be to purchase an immediate annuity. Another approach, called the “phased withdrawal” strategy in the literature, would have the retiree invest his funds and then withdraw some portion of the account annually. Using this second tactic, the withdrawal rate might be determined according to a fixed benefit level payable until the retiree dies or the funds run out, or it could be set using a variable formula, where the retiree withdraws funds according to a rule linked to life expectancy. Using a range of data consistent with the German experience, we evaluate several alternative designs for phased withdrawal strategies, allowing for endogenous asset allocation patterns, and also allowing the worker to make decisions both about when to retire and when to switch to an annuity. We show that one particular phased withdrawal rule is appealing since it offers relatively low expected shortfall risk, good expected payouts for the retiree during his life, and some bequest potential for the heirs. We also find that unisex mortality tables if used for annuity pricing can make women’s expected shortfalls higher, expected benefits higher, and bequests lower under a phased withdrawal program. Finally, we show that delayed annuitization can be appealing since it provides higher expected benefits with lower expected shortfalls, at the cost of somewhat lower anticipated bequests. en
dc.description.sponsorship Social Security Administration en
dc.format.extent 455197 bytes
dc.format.mimetype application/pdf
dc.language.iso en_US en
dc.publisher Michigan Retirement Research Center, University of Michigan, P.O. Box 1248, Ann Arbor, MI 48104 en
dc.relation.ispartofseries WP 2003-063 en
dc.title Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities versus Phased Withdrawal Plans. en
dc.type Working Paper en
dc.subject.hlbsecondlevel Population and Demography
dc.subject.hlbtoplevel Social Sciences
dc.contributor.affiliationother University of Frankfurt en
dc.contributor.affiliationother University of Pennsylvania en
dc.contributor.affiliationumcampus Ann Arbor en
dc.description.bitstreamurl http://deepblue.lib.umich.edu/bitstream/2027.42/50556/1/wp063.pdf en_US
dc.owningcollname Retirement Research Center, Michigan (MRRC)
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