TY  - JOUR
AU  - Brown,Jeffrey R.
TI  - Private Pensions, Mortality Risk, and the Decision to Annuitize
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7191
PY  - 1999
Y2  - June 1999
UR  - http://www.nber.org/papers/w7191
L1  - http://www.nber.org/papers/w7191.pdf
N1  - Author contact info:
Jeffrey R. Brown
Department of Finance
University of Illinois at Urbana-Champaign
515 East Gregory Drive
Champaign, IL 61820
Tel: 217/333-3322
E-Mail: brownjr@illinois.edu
AB  - This paper examines household decisions about whether or not to annuitize retirement resources.  A life-cycle model of consumption, implemented with the use of dynamic programming techniques, is used to construct a utility-based measure of annuity value for individuals and couples in the Health and Retirement Survey.  Variation in the calculated  annuity equivalent wealth' arises from differences in mortality risk, marital status, risk aversion, and the presence of pre-existing annuities such as Social Security.  I find that a one-percentage point increase in the annuity equivalent wealth leads to nearly a one-percentage point increase in the ex ante probability of annuitizing balances in defined contribution pension plans. However, because much of the variation in the expected annuity decision is left unexplained by the life-cycle model, other factors are also analyzed.  Health status and an individual's time horizon for financial decision making are significant determinants of the decision.  There is no evidence that bequest motives are an important factor in making marginal annuity decisions.
ER  -