Abstract:

This paper examines the interaction between the market for annuities and retirement and consumption decisions in the presence of lifetime uncertainty. We focus on two aspects of the demand for annuities: the timing of annuitization and the information available to the issuers of annuities with regard to purchasers ’ survival probabilities. The First-Best is attained by continuous annuitization of savings, with a guaranteed lump-sum payment to beneficiaries upon death. Annuitization of savings at retirement, and a-fortioti no annuitization, are inferior and lead to distortions in retirement and consumption decisions. Applying a ‘Stochastic Dominance ’ approach, we show how these decisions [...]

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