The Role of Annuity Markets in Financing Retirement

Overview

Dramatic advances in life expectancy mean that today's retirees must plan on living into their eighties, their nineties, and even beyond. Longer life expectancies are the symbol of a prosperous society, but this progress also means that some retirees will need to plan conservatively and cut back substantially on their living standards or risk living so long that they exhaust their resources. This book examines the role that life annuities can play in helping people protect themselves against such outcomes.A life ...

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Overview

Dramatic advances in life expectancy mean that today's retirees must plan on living into their eighties, their nineties, and even beyond. Longer life expectancies are the symbol of a prosperous society, but this progress also means that some retirees will need to plan conservatively and cut back substantially on their living standards or risk living so long that they exhaust their resources. This book examines the role that life annuities can play in helping people protect themselves against such outcomes.A life annuity is an insurance product that pays out a periodic amount for as long as the annuitant is alive, in exchange for a premium. The book begins with a history of life annuity markets during the twentieth century in the United States and elsewhere. It then explores recent trends in annuity pricing and money's worth, as well as the economic value generated for purchasers of these products. The book explains the potential importance of inflation-protected annuities and stock-market-linked variable annuities in providing more complete retirement security. The concluding chapters examine life annuities in various institutional settings and the tax treatment of annuity products.

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What People Are Saying

From the Publisher
"Peter Diamond is one of the world's premier economists. This path-breaking book extends the traditional theory of optimal taxation to multi-period models. But it also considers how optimal tax rules/formulas need to be modified if agents are myopic, borrowing constrained, or time inconsistent. Diamond's findings will change how we think about and design public policy toward retirement saving and life-cycle labor supply."—Laurence J. Kotlikoff, Department of Economics,Boston University

"This book is an outstanding contribution to our knowledge base about the role of annuities in assisting households to finance their retirements. It's the first book I've seen to cover these topics."—Laurence J. Kotlikoff, Department of Economics, Boston University

"I warmly welcome the publication of this book. The authors provide both a good descriptive view of the US private annuity system and a thorough analysis of the factors influencing the value individuals attach to annuity payout streams."—Alain Jousten, Department of Economics,Université de LiègePlease note: "Universite de Liege" bears an accute accent over the final "e" in"Universite," and a grave accent over the first "e" in "Liege."

"Well-written and thorough; this is high-quality research on an important public policy issue. The book collects the results of an impressive research agenda in one place."—WilliamM. Gentry, Graduate School of Business, Columbia University

"Life annuities can be extremely valuable and useful financial products. They can make retirement planning easier and more efficient. At the same time, they are not widely understood. The four authors of this book have produced the most authoritative and comprehensive examination of life annuities ever written. One can literally learn all there is to know about life annuities by reading this book. I recommend it to financial planners, academics, public policy makers, and anyone trying to understand theseimportant financial contracts. This book is a tour de force."—John B. Shoven, Charles R. Schwab Professor of Economics, Stanford UniversityPlease note: Endorser gives permission for us to use the last four sentences by themselves, beginning with "The four authors...."

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Product Details

  • ISBN-13: 9780262025096
  • Publisher: MIT Press
  • Publication date: 12/1/2001
  • Pages: 239
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.75 (d)

Meet the Author

Jeffrey R. Brown is Assistant Professor of Public Policy in the John F. Kennedy School ofGovernment at Harvard University.

Olivia S. Mitchell is IFEBP Professor of Insurance and Risk Management in the Wharton School at the University of Pennsylvania.

James M. Poterba is Mitsui Professor in the Department of Economics at MIT. He has beenDirector of the NBER Public Economics Research Program since 1991 and has edited volumes 6-20 ofTax Policy and the Economy.

Mark J. Warshawsky is Director of Retirement Research at Towers Watson, former member of theSocial Security Advisory Board, and coauthor of The Role of Annuity Markets in FinancingRetirement (MIT Press).

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Table of Contents

1 Introduction and Overview 1
2 A Brief History of Annuity Markets 23
3 Private Annuity Markets in the United States: 1919-1984 57
4 New Evidence on the Money's Worth of Individual Annuities 71
5 The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program 107
6 The Costs of Annuitizing Retirement Payouts from Individual Accounts 153
7 Taxing Retirement Income: Nonqualified Annuities and Distributions from Qualified Accounts 185
Index 227
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