Measuring the Tax Benefit of a Tax-Deferred Annuity

2009 ◽  
Author(s):  
David F. Babbel ◽  
Ravi Reddy
Keyword(s):  
Deferred Annuity

scholarly journals Addressing Longevity Risk: How Best to Annuitize Defined Contribution Assets?

2020 ◽  
Vol 4 (Supplement_1) ◽  
pp. 686-686
Author(s):  
Alicia Munnell ◽  
Gal Wettstein ◽  
Wenliang Hou
Keyword(s):  
Social Security ◽  
Longevity Risk ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Economics Of Aging ◽  
Distribution Rules ◽  
Lifetime Income ◽  
The Social ◽  
Defined Benefit Pensions ◽  
Deferred Annuity

Abstract Unlike defined benefit pensions, 401(k) plans provide little guidance on how to turn accumulated assets into income. The key risk that retirees face is outliving their assets. Insurance against such risk is available through several routes, including immediate annuities, deferred annuities, and additional Social Security through delayed claiming. Under this Social Security bridge option, participants would tap their 401(k) for payments equal to their Social Security to delay claiming. This paper compares these three options in simulations against a baseline in which no assets are used to obtain lifetime income. In each option, assets not allocated to purchasing lifetime income are consumed following the Required Minimum Distribution rules. The analysis finds that, when market and health shocks are included alongside longevity uncertainty, the Social Security bridge option is generally the best for households with median wealth. Wealthier households can benefit from combining the bridge option with a deferred annuity. Part of a symposium sponsored by the Economics of Aging Interest Group.

scholarly journals Cumulative prospect theory and deferred annuities

2019 ◽  
Vol 11 (3) ◽  
pp. 277-293 ◽  
Author(s):  
Anran Chen ◽  
Steven Haberman ◽  
Stephen Thomas
Keyword(s):  
Prospect Theory ◽  
Loss Aversion ◽  
Design Methodology ◽  
Behavioral Model ◽  
Cumulative Prospect Theory ◽  
Optimal Consumption ◽  
Content Type ◽  
Deferred Annuity ◽  
To Receive

Purpose Although it has been proved theoretically that annuities can provide optimal consumption during one’s retirement period, retirees’ reluctance to purchase annuities is a long-standing puzzle. The purpose of this paper is to use behavioral model to analyze the low demand for immediate annuities. Design/methodology/approach The authors employ cumulative prospect theory (CPT), which contains both loss aversion and probability transformations, to analyze the annuity puzzle. Findings The authors show that CPT can explain the unattractiveness of immediate annuities. It also shows that retirees would be willing to buy a long-term deferred annuity at retirement. By considering each component from CPT in turn, the loss aversion is found to be the major reason that stops people from buying an annuity while the survival rate transformation is an important factor affecting the decision of when to receive annuity incomes. Originality/value This paper identifies CPT as one of the reasons for the low demand of immediate annuities. It further suggests that long-term deferred annuities could overcome behavioral obstacles and become popular among retirees.

On Assurances against the Risk of ‘Invalidity’ or Permanent Inability to Work

1869 ◽  
Vol 15 (2) ◽  
pp. 143-145
Author(s):  
Wilhelm Lazarus
Keyword(s):  
Old Age ◽  
Premature Death ◽  
The Real ◽  
Life Assurance ◽  
The Family ◽  
Inability To Work ◽  
Deferred Annuity

Life Assurance provides for the family of the deceased in case of premature death; deferred Annuities provide for old age; but both institutions leave uncovered the risk of premature inability to work. Invalidity Assurance, including the benefits of a deferred Annuity, would be the real complement to Life Assurance. This truth is so deeply felt in Germany, that a good many institutions, employing a large number of officers, workmen, and labourers; many mills, and particularly the Railway Companies, long since directed their attention to the providing for their officers in case of their being invalided. How were they to calculate the annual contribution, how to make the valuation of their liabilities?

Demographic risk in deep-deferred annuity valuation

2017 ◽  
Vol 11 (2) ◽  
pp. 286-314 ◽  
Author(s):  
Min Ji ◽  
Rui Zhou
Keyword(s):  
Later Life ◽  
The United States ◽  
Mortality Data ◽  
Retirement Savings ◽  
Model Risk ◽  
Improvement Rate ◽  
Mortality Improvement ◽  
Demographic Risk ◽  
Deferred Annuity ◽  
High Uncertainty

AbstractA deep-deferred annuity is a deferred annuity where payments start very late in life, i.e. well after the normal retirement age. This annuity has received much attention lately as it was made accessible to 401(k) plans in the United States in 2014. By transferring the risk of outliving retirement savings at high ages to annuity providers, deep-deferred annuities provide annuitants with enhanced later-life financial security. However, the valuation of this annuity suffers from high uncertainty because the mortality data at high ages are sparse and possibly unreliable. In this paper, we use risk ratio to measure demographic risk in the valuation. Demographic risk is decomposed into the following four components: (1) mortality tail curve risk, (2) mortality improvement model risk, (3) parameter risk in mortality tail curves, and (4) parameter risk in mortality improvement rate models. Our quantitative analysis aims to provide insights into the development and risk management of deep-deferred annuities.

Life annuities of compulsory savings and income adequacy of the elderly in Singapore

2003 ◽  
Vol 2 (1) ◽  
pp. 41-65 ◽  
Author(s):  
NGEE CHOON CHIA ◽  
ALBERT K. C. TSUI
Keyword(s):  
The Elderly ◽  
Cash Flows ◽  
Medical Expense ◽  
Income Adequacy ◽  
The Future ◽  
Single Premium ◽  
Future Consumption ◽  
Life Annuities ◽  
Deferred Annuity ◽  
Future Cash Flows

Singapore has a publicly managed central provident fund (CPF) system, which is compulsory and based on individual accounts with an explicit link between contribution and benefits. This paper assesses the adequacy of the CPF saving to meet the retirement needs of the elderly in Singapore. Instead of emphasizing the mechanism of accumulation, we focus on the expenditure side of the lifetime budget of the elderly and estimate the present value of retirement consumption (PVRC). The estimated PVRC is obtained by simulations through three major components: calibration of subsistence and medical expenses of the elderly; forecast of cohort survival probability by age and by sex; and generation of yield curves to discount the future cash flows. Our results indicate that the existing CPF-decreed minimum sum is inadequate to meet the future consumption needs of the female elderly. The inadequacy becomes more severe when medical expense is set at higher growth rates. Moreover, the monthly payouts of a single premium deferred annuity are computed as illustrative examples.

scholarly journals Interaction effects between dynamic hybrid products and traditional deferred annuities in the German life insurance market

2021 ◽  
Author(s):  
Nikolaj Moretti ◽  
Johannes Bartels
Keyword(s):  
Life Insurance ◽  
Interaction Effects ◽  
Insurance Market ◽  
Insurance Company ◽  
Hybrid Products ◽  
Negative Effect ◽  
German Life ◽  
Dynamic Hybrid ◽  
Using Data ◽  
Deferred Annuity

AbstractDynamic hybrid products emerged in 2007 and are now well established in the German life insurance market. In this article, we study interaction effects between dynamic hybrid products and traditional deferred annuity contracts, that are sold by the same insurance company. The key question we investigate is whether the presence of dynamic hybrid products has a negative effect on the payout of traditional insurance products. We do so by using data drawn from a Monte Carlo simulation that is based on a model presented in this article. These data reveal that dynamic hybrid products reduce the payment to policyholders of traditional deferred annuities via the channel of surplus participation.

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