Health Cost Risk: A Potential Solution to the Annuity Puzzle

Peijnenburg, Kim; Nijman, Theo; Werker, Bas J. M.

doi:10.2139/ssrn.1554359

Cited by 23 publications

(28 citation statements)

References 68 publications

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“…Medical spending risk could increase demand for liquid assets and thus reduce the demand for annuities. Davidoff et al [17] and Peijnenburg et al [87] show that high medical risk early in retirement tends to decrease annuity demand, while large medical risks late in retirement tends to increase it.…”

Section: Many Studies Of the Underannuitization Puzzle Focus On Advermentioning

confidence: 99%

Savings After Retirement: A Survey

2016

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De Nardi gratefully acknowledges support from the ERC grant 614328 "Savings and Risks'' and from the ESRC through the Centre for Macroeconomics. We are grateful to Rory McGee and Cormac O'Dea for comments and suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research, any agency of the federal government, the Federal Reserve Bank of Chicago, or the IFS. This survey has been prepared for the Annual Review of Economics. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Section: Many Studies Of the Underannuitization Puzzle Focus On Advermentioning

confidence: 99%

Savings After Retirement: A Survey

2016

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“…For instance, Ameriks, Caplin, Laufer, and Van Nieuwerburgh (2011), Ameriks, Briggs, Caplin, Shapiro, and Tonetti (2018), and Lockwood (2012Lockwood ( , 2018 explain observed low annuity demand using structural models that combine a precautionary savings motive (for long-term care expenses when there is public care aversion) with a bequest motive; Reichling and Smetters (2015) do so as well by introducing stochastic mortality and correlated uninsured health care costs. Peijnenburg, Nijman, and Werker (2017) show that medical expenditure risk can rationalize low observed annuitization levels early in retirement, but not why many older people fail to buy annuities. Finally, Laitner, Silverman, and Stolyarov (2018) show analytically how the presence of implicit longevity insurance provided by Medicaid nursing home care can crowd out demand for annuities for the lower and middle classes.…”

Section: Introductionmentioning

confidence: 88%

Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing

Brown¹,

Kapteyn

Luttmer

et al. 2021

The Review of Economics and Statistics

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This paper examines two behavioral factors that diminish people’s ability to value a lifetime income stream or annuity, drawing on a randomized experiment with about 4,000 adults in a U.S. nationally representative sample. We find that increasing the complexity of the annuity choice reduces respondents’ ability to value the annuity, measured by the difference between the sell and buy values they assign to the annuity. When we limit narrow choice bracketing by inducing people to think first about how quickly or slowly to spend down assets in retirement, their ability to value an annuity increases.

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“…For instance, Ameriks, Caplin, Laufer, and Van Nieuwerburgh (2011), Ameriks, Briggs, Caplin, Shapiro, and Tonetti (2018), and Lockwood (2012Lockwood ( , 2018 explain observed low annuity demand using structural models that combine a precautionary savings motive (for longterm care expenses when there is public care aversion) with a bequest motive; Reichling and Smetters (2015) do so as well by introducing stochastic mortality and correlated uninsured health care costs. Peijnenburg, Nijman, and Werker (2017) show that medical expenditure risk can rationalize low observed annuitization levels early in retirement, but not why many older people fail to buy annuities. Finally, Laitner, Silverman, and Stolyarov (2018) show analytically how the presence of implicit longevity insurance provided by Medicaid nursing home care can crowd out demand for annuities for the lower and middle classes.…”

Section: Introductionmentioning

confidence: 88%

Behavioral Impediments to Valuing Annuities: Evidence on the Effects of Complexity and Choice Bracketing

Brown

Kapteyn

Luttmer

et al. 2017

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Brown is a Trustee of TIAA and has served as a speaker, author, or consultant for a number of financial services organizations, some of which sell annuities and other retirement income products. Mitchell is a Trustee of the Wells Fargo Advantage Funds and has received research support from the TIAA Institute. The opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of any institution with which the authors are affiliated nor of USC, CESR, the UAS, or the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w24101.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Health Cost Risk: A Potential Solution to the Annuity Puzzle

Cited by 23 publications

References 68 publications

Savings After Retirement: A Survey

Savings After Retirement: A Survey

Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing

Behavioral Impediments to Valuing Annuities: Evidence on the Effects of Complexity and Choice Bracketing

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