Mortality Risk, Inflation Risk, and Annuity Products

Jeffrey R. Brown, Olivia S. Mitchell, James M. Poterba

NBER Working Paper No. 7812
Issued in July 2000
NBER Program(s):   AG   PE

As growing numbers of retirees reach retirement age with substantial balances in self-directed retirement plans, annuities are likely to become increasingly important instruments for drawing down retirement savings. This study explores recent trends in the pricing of single-premium annuity products in the United States. Virtually all of the annuity products currently available in the United States offer fixed nominal payouts, rather than an inflation-linked payout stream. After describing the money's worth' of the various types of nominal annuity products, this study considers the extent to which existing U.S. private annuity markets provide retirees with inflation-protected retirement income flows. Although there is effectively no market yet for inflation-indexed annuities in the United States, such products are available in other countries. The paper concludes by summarizing recent data on the pricing of both nominal and inflation-linked annuities in the United Kingdom and several other nations.

(209 K)

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Published: Mitchell, O., Z. Bodie, B. Hammond, and S. Zeldes (eds.) Innovations in Retirement Financing. Philadelphia, PA: University of Pennsylvania Press, 2002.

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