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

dc.contributor.authorDus, Ivica
dc.contributor.authorMaurer, Raimond H.
dc.contributor.authorMitchell, Olivia S.
dc.date.accessioned2007-04-25T16:27:48Z
dc.date.available2007-04-25T16:27:48Z
dc.date.issued2003-11
dc.identifier.urihttps://hdl.handle.net/2027.42/50556
dc.description.abstractHow 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.sponsorshipSocial Security Administrationen
dc.format.extent455197 bytes
dc.format.mimetypeapplication/pdf
dc.language.isoen_USen
dc.publisherMichigan Retirement Research Center, University of Michigan, P.O. Box 1248, Ann Arbor, MI 48104en
dc.relation.ispartofseriesWP 2003-063en
dc.titleBetting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities versus Phased Withdrawal Plans.en
dc.typeWorking Paperen
dc.subject.hlbsecondlevelPopulation and Demography
dc.subject.hlbtoplevelSocial Sciences
dc.contributor.affiliationotherUniversity of Frankfurten
dc.contributor.affiliationotherUniversity of Pennsylvaniaen
dc.contributor.affiliationumcampusAnn Arboren
dc.description.bitstreamurlhttp://deepblue.lib.umich.edu/bitstream/2027.42/50556/1/wp063.pdfen_US
dc.owningcollnameRetirement and Disability Research Center, Michigan (MRDRC)


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