Life-cycle asset allocation with annuity markets

Horneff, Wolfram J.; Maurer, Raimond; Stamos, Michael Z.

doi:10.1016/j.jedc.2008.01.007

Cited by 109 publications

(67 citation statements)

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“…The literature has examined welfare gains due to variable annuities (see, e.g., Koijen et al (2011), andHorneff et al (2008b)). This section examines whether adding variable annuities to the menu increases welfare sizeably in our setup with post-retirement savings.…”

Section: Welfare Gains Of Variable Annuitiesmentioning

confidence: 99%

“…They, however, assume that the asset allocation of the portfolio linked to the variable annuity can vary over time and additional annuities can be bought every year. This strand of literature includes annuities in the asset allocation menu, and agents decide how much to invest in equity/bonds/annuities annually (Horneff et al (2008b)). In that case agents do not fully annuitize at age 65, to invest in equity.…”

Section: Welfare Gains Of Variable Annuitiesmentioning

confidence: 99%

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The annuity puzzle remains a puzzle

Peijnenburg

Nijman

Werker

2016

Journal of Economic Dynamics and Control

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We examine incomplete annuity menus and background risk as possible drivers of divergence from full annuitization. Contrary to what is often suggested in the literature, we find that full annuitization remains optimal if saving is possible after retirement. This holds irrespective of whether real or only nominal annuities are available. Whenever liquidity is desired, individuals save sizeable amounts out of their annuity income to smooth consumption shocks. Similarly, adding variable annuities to the menu does not increase welfare significantly, since individuals can save in order to get the desired equity exposure. We calculate bounds on a possible bequest motive and default risk of the annuity provider and find that for realistic parameters full annuitization remains optimal.

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Section: Welfare Gains Of Variable Annuitiesmentioning

confidence: 99%

Section: Welfare Gains Of Variable Annuitiesmentioning

confidence: 99%

The annuity puzzle remains a puzzle

Peijnenburg

Nijman

Werker

2016

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

show abstract

“…See e.g. Horneff et al (2008) considering an individual characterized by Epstein-Zin preferences, Cai and Ge (2012) investigating the asset allocation for an investor with a loss aversion objective, a predetermined objective and a greedy objective, Consigli et al (2012) comparing investment opportunities offered by traditional pension products and unit-linked contracts with variable life annuities, and Blake et al (2013) deriving the optimal investment for a loss averse pension saver with an interim and final target.…”

Section: Introductionmentioning

confidence: 99%

A combined stochastic programming and optimal control approach to personal finance and pensions

et al. 2014

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“…Milevsky and Young (2007) argue that even in the presence of a bequest motive individuals should hold some fixed annuities, and the proportion in the annuities should increase with the level of risk aversion. Horneff et al (2008), moreover, show that the optimal stock fraction follows the well-known life-cycle pattern with the shift towards fixed annuities instead of bonds, and that bonds should be chosen only in the case of a substantial bequest motive. Horneff et al (2009) extend this work by including variable annuities and argue that the attractiveness of these products lies in their high expected return consisting of an equity premium as well as a survival credit.…”

Section: Introductionmentioning

confidence: 78%