Optimal annuity risk management

R.S.J. Koijen, T.E. Nijman, B.J.M. Werker

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper studies the life-cycle consumption and portfolio choice problem taking account of annuity risk at retirement. The study allows for government-provided annuity income. Optimally, households allocate retirement wealth to nominal, inflation-linked and variable annuities, and condition this choice on the state of the economy. The case in which there are limitations in the types of annuities that are available is also considered and the costs of annuity market incompleteness are quantified. Subsequently, the paper determines how investors optimally anticipate annuitization before retirement. The conclusion is that ignoring annuity risk before and at retirement can be economically costly.
Original languageEnglish
Pages (from-to)799-833
JournalReview of Finance
Volume15
Issue number4
Publication statusPublished - 2011

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Risk management
Annuities
Retirement
Investors
Wealth
Variable annuities
Annuitization
Income
Household
Inflation
Government
Portfolio choice
Market incompleteness
Costs
Life-cycle consumption

Cite this

Koijen, R.S.J. ; Nijman, T.E. ; Werker, B.J.M. / Optimal annuity risk management. In: Review of Finance. 2011 ; Vol. 15, No. 4. pp. 799-833.
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Koijen, RSJ, Nijman, TE & Werker, BJM 2011, 'Optimal annuity risk management', Review of Finance, vol. 15, no. 4, pp. 799-833.

Optimal annuity risk management. / Koijen, R.S.J.; Nijman, T.E.; Werker, B.J.M.

In: Review of Finance, Vol. 15, No. 4, 2011, p. 799-833.

Research output: Contribution to journalArticleScientificpeer-review

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