No abstract

401(k) plans provide little guidance on turning accumulated assets into income. Insurance against the risk of outliving one's assets is available through immediate annuities, deferred annuities, and additional Social Security through delayed claiming. Under this Social Security bridge option, participants would tap their 401(k) for payments equal to their Social Security to delay claiming. This paper compares these three options in simulations against a baseline in which no assets are annuitized. In each option, assets not allocated to purchasing lifetime income are consumed following the required minimum distribution; robustness of results to optimal drawdown conditional on annuitization strategy is also assessed. The analysis finds that, when market and health shocks are included alongside longevity uncertainty, the Social Security bridge option is generally the best for households with median wealth. Wealthier households can benefit from combining the bridge option with a deferred annuity.

The expectation of needing long-term care is an essential input into optimal saving and long-term care insurance decisions. Previous optimization models have used the Robinson (2002) transition probabilities, which have not been systematically updated and which underpredict the use of care while overpredicting the average stay of people who enter care. We develop a new statistical model and use current data to estimate health impairment and care transition probabilities. We show that impairment and care use have declined and that, after incorporating the new transition probabilities, optimal long-term care insurance holdings are much lower and are close to actual holdings.

is to produce first-class research and forge a strong link between the academic community and decision-makers in the public and private sectors around an issue of critical importance to the nation's future. To achieve this mission, the Center sponsors a wide variety of research projects, transmits new findings to a broad audience, trains new scholars, and broadens access to valuable data sources.

is to produce first-class research and forge a strong link between the academic community and decision-makers in the public and private sectors around an issue of critical importance to the nation's future. To achieve this mission, the Center sponsors a wide variety of research projects, transmits new findings to a broad audience, trains new scholars, and broadens access to valuable data sources.