NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Lifecycle Portfolio Choice with Systematic Longevity Risk and Variable Investment-Linked Deferred Annuities

Vasily Kartashov, Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla

NBER Working Paper No. 17505
Issued in October 2011
NBER Program(s):   AG   LS   PE

This paper assesses the impact of variable investment-linked deferred annuities (VILDAs) on lifecycle consumption, saving, and portfolio allocation patterns given stochastic and systematic mortality. Insurers have taken two approaches to manage systematic mortality risks, namely self-insurance and risk transfer to purchasers of the annuity products. We demonstrate that self-insurance leads to high loadings, so that households offered a choice would favor the risk transfer scheme. Reservation loadings on the actuarially fair VILDA price for non-participation are 0.5-8%; if insurers cannot hedge within this range, they will transfer systematic longevity risks to the annuitants. Our findings have implications for new payout products that may be attractive to older households seeking to protect against retirement shortfalls.

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Document Object Identifier (DOI): 10.3386/w17505

Published: Raimond Maurer & Olivia S. Mitchell & Ralph Rogalla & Vasily Kartashov, 2013. "Lifecycle Portfolio Choice With Systematic Longevity Risk and Variable Investment—Linked Deferred Annuities," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(3), pages 649-676, 09. citation courtesy of

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