Rational Decumulation

Babbel, David F.; Merrill, Craig

doi:10.2139/ssrn.917223

Cited by 38 publications

(57 citation statements)

References 51 publications

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“…The reason is that the nominal annuity is less welfare enhancing than the real annuity, hence there are more incentives to decrease the annuity level when default risk is high. Second, we see that the fraction of wealth recovered is important for the optimal annuity demand, which is similar to the findings of Babbel and Merril (2006). In this paper we normalized all numbers in terms of the Full Real Annuity Income, but the wealth that was used as a basis is $335,000, which is the median total wealth level at 65.…”

Section: Financial Market Parameter: Bounds On Default Risksupporting

confidence: 75%

“…Second, if the amount recovered from the insurer is less than the guarantee of the state, then this amount is supplemented up to the guaranteed amount. In most states in the U.S. at least $100,000 is guaranteed and the maximum is $500,000 (Babbel and Merril (2006)). So even if the insurer goes bankrupt and the recovery value is low, the annuitant gets at least $100,000 of the present value of the annuity back.…”

Section: Financial Market Parameter: Bounds On Default Riskmentioning

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: Financial Market Parameter: Bounds On Default Risksupporting

confidence: 75%

Section: Financial Market Parameter: Bounds On Default Riskmentioning

confidence: 99%

The annuity puzzle remains a puzzle

Peijnenburg

Nijman

Werker

2016

Journal of Economic Dynamics and Control

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show abstract

“…Such a bankruptcy, to the extent that the annuity payments are not guaranteed (see Babbel and Merrill 2006), would, of course, jeopardize the funds in the annuity.…”

Section: Fear Of Illiquiditymentioning

confidence: 99%

Behavioral Obstacles in the Annuity Market

Hu¹,

Scott²

2007

Financial Analysts Journal

155

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“…Brown and Poterba (2000) find that the bequest motive is not a significant factor in the decision to forgo annuitization. And Babbel and Merrill (2006) show (theoretically) that annuity purchase decisions can be highly sensitive to the perception of default risk of annuity providers.…”

mentioning

confidence: 99%

“…Despite the theoretical advantages of annuitization (Yaari 1965;Davidoff, Brown, and Diamond 2005;Babbel and Merrill 2006), voluntary demand for annuities worldwide is far below what is considered optimal by most economists, and annuity markets remain relatively underdeveloped, even in high-income economies. 9 Potential contributing factors include adverse selection (which decreases incentives to supply annuities), bequest motives (which decrease incentives to buy annuities), and annuity-provider default risk.…”

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confidence: 99%

Financial Development: Maturing and Emerging Policy Issues

Torre¹,

Gozzi²,

Schmukler³

2007

The World Bank Research Observer

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In recent decades, financial development policies in emerging market economies have been shaped by a fundamental shift toward market-based financial systems and the lessons from financial crises. Today, there is consensus that financial development depends on financial stability and convergence toward international standards. While the debate on some issues has matured, policy thinking in other areas is changing, fueled by recent experiences. This article analyzes the evolution of policy thinking on financial development and discusses three areas that are important to achieving deeper financial systems: stock market development, small-and medium-size enterprise financing, and defined-contribution pension systems. The main emerging issues in these areas are illustrated using recent experiences in Latin America. The article concludes that there is a need to take a fresh look at the evidence, improve diagnoses, and revisit expectations. JEL codes: F36, G15, G18, G20.Policymakers concerned with financial development in emerging market economies face an increasingly complex and perplexing situation. Despite the many efforts already undertaken to improve the macroeconomic environment and reform the institutions believed to foster financial development, financial markets in most emerging economies remain relatively underdeveloped. The more stable, internationalized, and better regulated financial systems of today do not seem to be contributing to social and economic development as much as expected at the beginning of the reform process. This has left policymakers with no clear guidance on how to move forward on the financial market development process and has brought to the forefront of policymakers' agenda some big emerging issues in critical areas of financial development that have not been adequately addressed in the policy debate. These issues have emerged after other important policy issues have been settled and as experience has started to show

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Rational Decumulation

Cited by 38 publications

References 51 publications

The annuity puzzle remains a puzzle

The annuity puzzle remains a puzzle

Behavioral Obstacles in the Annuity Market

Financial Development: Maturing and Emerging Policy Issues

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