NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Differential Mortality and the Value of Individual Account Retirement Annuities

Jeffrey R. Brown

NBER Working Paper No. 7560
Issued in February 2000
NBER Program(s):   AG   PE

This paper examines the extent of redistribution that would occur under various annuity and bequest options as part of an individual accounts retirement program. I first estimate mortality differentials by gender, race, ethnicity and level of education using the National Longitudinal Mortality Study and document substantial differences. I then use these estimates to examine the expected transfers' that would take place between socioeconomic groups under different assumptions about the structure of an annuity program. Using an expected present discounted value or money's worth' calculation as the basis for comparison, I find that the size of transfers in an individual accounts program is highly sensitive to the benefit structure. For example, mandating a single-life, real annuity can result in expected transfers of as high as 20% of the account balance, often from economically disadvantaged groups toward groups that are better off. These transfers can be substantially reduced through the use of joint life annuities, survivor provisions and bequest options. For example, the largest expected negative transfer under a joint and full survivor annuity with a fully valued 20-year guarantee option is only 2% of the account balance. However, efforts to reduce the extent of redistribution generally do so at the cost of significantly lower annuity benefits paid to the individuals who contribute to the system.

download in pdf format
   (147 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (147 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7560

Published: Differential Mortality and the Value of Individual Account Retirement Annuities, Jeffrey Brown. in The Distributional Aspects of Social Security and Social Security Reform, Feldstein and Liebman. 2002

Users who downloaded this paper also downloaded these:
Brown Differential Mortality and the Value of Individual Account Retirement Annuities
Brown w13537 Rational and Behavioral Perspectives on the Role of Annuities in Retirement Planning
Lachance and Mitchell w8731 Guaranteeing Defined Contribution Pensions: The Option to Buy-Back a Defined Benefit Promise
Davidoff, Brown, and Diamond w9714 Annuities and Individual Welfare
Liebman w8625 Redistribution in the Current U.S. Social Security System
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us