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Retirement IncomeRisks and Strategies$
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Mark J. Warshawsky

Print publication date: 2011

Print ISBN-13: 9780262016933

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262016933.001.0001

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Longevity-Insured Retirement Distributions: Basic Theories and Institutions

Longevity-Insured Retirement Distributions: Basic Theories and Institutions

(p.56) (p.57) 3 Longevity-Insured Retirement Distributions: Basic Theories and Institutions
Retirement Income

Jeffrey R. Brown

The MIT Press

This chapter examines the extent to which individuals can and do insure themselves against longevity risk in defined contribution plans, and why this is an issue of policy concern, focusing on three main issues. First, the welfare gains from annuitization that result from a standard life cycle model are reviewed. Second, several reasons are enumerated as to why households choose not to annuitize despite the theoretical welfare gains, including the presence of Social Security, the pricing of annuities in the market, bequest motives, inflation risk, health uncertainty, ignorance, and regulatory impediments. Third, it is demonstrated that one result of the shift from defined benefit to defined contribution plans is a reduction in opportunities to annuitize retirement wealth, since the majority of defined contribution plans do not offer an annuity payout option.

Keywords:   longevity risk, defined contribution plans, annuitization, defined benefit, retirement wealth, annuity payout option

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