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The Annuity Puzzle Revisited

dc.contributor.authorBenítez-Silva, Hugo A.
dc.description.abstractThere is a pressing need for a better understanding of how access to various types of financial products can impact retirement behavior, especially if this access comes from a change in the incentive scheme through a reform of the current Social Security system. This is especially important if we are to provide useful policy recommendations regarding reform to the current social insurance system. In this paper I focus on the "annuity puzzle," the question as to why the annuity market is so narrow. I present a model that endogenizes the annuity decision along with the consumption/saving and labor supply decisions. This research enhances our understanding of how annuities work in a life cycle model with more realistic characterizations of the choices and incentives that individuals face. My results show that the low rates of annuitization can be the product of optimal decision making by individuals in a life cycle model which endogenizes the labor/leisure decision and accounts for Social Security. The government should pay particular attention to the rules regarding withdrawal of benefits through annuities or lump-sums when introducing individual retirement accounts or other privatization schemes, given the interaction between retirement incentives and the attractiveness of annuities.en
dc.description.sponsorshipSocial Security Administrationen
dc.format.extent731334 bytes
dc.publisherMichigan Retirement Research Center, University of Michigan, P.O. Box 1248, Ann Arbor, MI 48104en
dc.relation.ispartofseriesWP 2003-055en
dc.titleThe Annuity Puzzle Revisiteden
dc.typeWorking Paperen
dc.subject.hlbsecondlevelPopulation and Demography
dc.subject.hlbtoplevelSocial Sciences
dc.contributor.affiliationotherSUNY-Stony Brooken
dc.contributor.affiliationumcampusAnn Arboren
dc.owningcollnameRetirement and Disability Research Center, Michigan (MRDRC)

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