Accounting and Actuarial Smoothing of Retirement Payouts in Participating Life Annuities

Maurer, Raimond; Mitchell, Olivia S.; Rogalla, Ralph; Siegelin, Ivonne

doi:10.2139/ssrn.2522963

Cited by 9 publications

(11 citation statements)

References 41 publications

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“…Results showing values expressed as life-long annuities are available upon request. Other retirement smoothing mechanisms for the payout phase can be found in the literature, like the contribution by Maurer et al (2016) and other previous research (see Guillen et al 2006).…”

Section: Resultsmentioning

confidence: 88%

Implementing Individual Savings Decisions for Retirement With Bounds on Wealth

Donnelly¹,

Guillén

Nielsen³

et al. 2017

ASTIN Bull.

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This is the accepted version of the paper.This version of the publication may differ from the final published version. We present a savings plan for retirement that removes risk by fixing a constraint on a life-long pension so that it has an upper and a lower bound. This corresponds to the ideas of Nobel laureate R.C. Merton whose implementation has never been published. We show with an illustration that our proposed practical algorithm reproduces the theoretical results after a savings period of around thirty years by using daily, monthly, weekly or yearly updates of the investment positions. We calculate the percentiles of the final accumulated wealth distribution for the adjusted implementation. In the simulated illustration we observe that the adjusted values converge to the theoretical values of the percentiles when the frequency of update increases. We conclude that monthly adjustments result in a practical way to implement theoretical results that were obtained under the hypothesis of a continuous process by Donnelly et al. (2015). This method is easy to use in practice by pension savers and fund managers. Permanent repository link2

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Section: Resultsmentioning

confidence: 88%

Implementing Individual Savings Decisions for Retirement With Bounds on Wealth

Donnelly¹,

Guillén

Nielsen³

et al. 2017

ASTIN Bull.

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“…Practically, even if these three types of savings vehicles are first-best, when nearly half of households lack any semi-liquid retirement savings, introducing some liquidity into the Social Security program may be beneficial. Much work has advocated the provision of lump-sum benefits of Social Security wealth to discourage early retirement, noting households' preferences for one-time payouts that enable them to pay down mortgages or other debt ( Maurer et al, 2016 ; Maurer and Mitchell, 2018 ). We build on this insight, suggesting that lump sum payments in this crisis would provide households a way to finance expenditure at record-low rates of interest.…”

Section: Introductionmentioning

confidence: 99%

Relaxing household liquidity constraints through social security

Catherine

Miller

Sarin

2020

Journal of Public Economics

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More than a quarter of working-age households in the United States do not have sufficient savings to cover their expenditures after a month of unemployment. Recent proposals suggest giving workers early access to a small portion of their future Social Security benefits to finance their consumption during the COVID-19 pandemic. We empirically analyze their impact. Relying on data from the Survey of Consumer Finances, we build a measure of households' expected time to cash shortfall based on the incidence of COVID-induced unemployment. We show that access to 1% of future benefits allows 75% of households to maintain their current consumption for three months in case of unemployment. We then compare the efficacy of access to Social Security benefits to already legislated approaches, including early access to retirement accounts, stimulus relief checks, and expanded unemployment insurance.

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“…Nonetheless, we investigate the impact of smoothing in variable annuities and show how a stable expected pension payment can be attained within this setting. Maurer et al (2016) and Guillén et al (2006) investigate smoothing in collective pension plans with both intergenerational risk transfers and risk-sharing between pension providers and holders. We abstain from wealth transfers between retirees and insurers, and focus on the method to smooth within the retiree's own available wealth.…”

Section: Introductionmentioning

confidence: 99%

The Effect of the Assumed Interest Rate and Smoothing on Variable Annuities

Balter¹,

Werker²

2019

ASTIN Bull.

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In this paper, we consider the risk–return trade-off for variable annuities in a Black–Scholes setting. Our analysis is based on a novel explicit allocation of initial wealth over the payments at various horizons. We investigate the relationship between the optimal consumption problem and the design of variable annuities by deriving the optimal so-called assumed interest rate for an investor with constant relative risk aversion preferences. We investigate the utility loss due to deviations from this. Finally, we show analytically how habit-formation-type smoothing of financial market shocks over the remaining lifetime leads to smaller year-to-year volatility in pension payouts, but to increases in the longer-term volatility.

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Accounting and Actuarial Smoothing of Retirement Payouts in Participating Life Annuities

Cited by 9 publications

References 41 publications

Implementing Individual Savings Decisions for Retirement With Bounds on Wealth

Implementing Individual Savings Decisions for Retirement With Bounds on Wealth

Relaxing household liquidity constraints through social security

The Effect of the Assumed Interest Rate and Smoothing on Variable Annuities

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