TY  - JOUR
AU  - Poterba,James M.
AU  - Warshawsky,Mark J.
TI  - The Costs of Annuitizing Retirement Payouts from Individual Accounts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6918
PY  - 1999
Y2  - January 1999
UR  - http://www.nber.org/papers/w6918
L1  - http://www.nber.org/papers/w6918.pdf
N1  - Author contact info:
James M. Poterba
Department of Economics
MIT, E52-350
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-6673
Fax: 617/258-7804
E-Mail: poterba@nber.org

Mark Warshawsky
Towers Watson
E-Mail: mark.warshawsky@watsonwyatt.com
M1  - published as James M. Poterba, Mark Warshawsky. "The Costs of Annuitizing Retirement Payouts from Individual Accounts," in John B. Shoven, editor, "Administrative Aspects of Investment-Based Social Security Reform" University of Chicago Press (2000)

AB  - This paper presents new evidence on the costs of purchasing private annuity contracts to spread a given stock of assets over an uncertain future lifetime.  It also describes the operation of individual annuity arrangements within two large group retirement saving plans.  First presents information on life annuity contracts that are now available in the individual single-premium-immediate annuity marketplace.  For a 65-year-old male annuity buyer present discounted value of the payouts offered by the average policy available in June 1998 was approximately 85 percent of the purchase price.  This assumes that the individual faces the mortality risks of the average individual in the population, and that the payouts are discounted at a riskless interest rate.  The expected present value of payouts rises if we assume that the buyer faces the mortality rates of the typical annuitant, while it declines if we assume a higher riskier, interest rate for discounting.  Second, the paper considers individual annuity policies available to participants in the government's Thrift Savings Plan. Because these annuities are purchased through a large group retirement saving program, some of the administrative costs are lower than those in the national individual annuity market.  The expected present value of payouts is correspondingly higher than that in the  public' market. Third individual annuity products offered by TIAA-CREF, the retirement system for college and university employees.  TIAA offers annuities with non-guaranteed elements the highest payouts in the individual annuity market, mainly due to superior investment returns and low expenses.  CREF annuities offer valuable payouts that reflect basis, the investment experience of the accounts.
ER  -