Goethe University Frankfurt
Theodor-W. Adorno Platz 3
House of Finance
NBER Working Papers and Publications
|February 2018||How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior|
with Raimond Maurer, Olivia S. Mitchell: w24311
This paper explores how an environment of persistent low returns influences saving, investing, and retirement behaviors, as compared to what in the past had been thought of as more “normal” financial conditions. Our calibrated lifecycle dynamic model with realistic tax, minimum distribution, and Social Security benefit rules produces results that agree with observed saving, work, and claiming age behavior of U.S. households. In particular, our model generates a large peak at the earliest claiming age at 62, as in the data. Also in line with the evidence, our baseline results show a smaller second peak at the (system-defined) Full Retirement Age of 66. In the context of a zero return environment, we show that workers will optimally devote more of their savings to non-retirement accounts and...
|October 2016||Putting the Pension Back in 401(k) Plans: Optimal versus Default Longevity Income Annuities|
with Raimond Maurer, Olivia S. Mitchell: w22717
Most defined contribution pension plans pay benefits as lump sums, yet the US Treasury has recently encouraged firms to protect retirees from outliving their assets by converting a portion of their plan balances into longevity income annuities (LIA). These are deferred annuities which initiate payouts not later than age 85 and continue for life, and they provide an effective way to hedge systematic (individual) longevity risk for a relatively low price. Using a life cycle portfolio framework, we measure the welfare improvements from including LIAs in the menu of plan payout choices, accounting for mortality heterogeneity by education and sex. We find that introducing a longevity income annuity to the plan menu is attractive for most DC plan participants who optimally commit 8-15% of their ...
|July 2013||Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection|
with Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla: w19206
We evaluate lifecycle consumption and portfolio allocation patterns resulting from access to Guaranteed Minimum Withdrawal Benefit (GMWB) variable annuities, one of the most rapidly-growing financial innovations over the last two decades. A key feature of these products is that they offer access to equity investments with downside protection, hedging of longevity risk, and partially-refundable premiums. Welfare rises since policyholders exercise the product's flexibility by taking withdrawals and dynamically adjusting their portfolios and consumption streams. Consistent with observed behavior, differences across individuals' cash out and annuitization patterns result from variations in realized equity market returns and labor income trajectories.
Published: Insurance: Mathematics and Economics Volume 63, July 2015, Pages 91–107 Special Issue: Longevity Nine - the Ninth International Longevity Risk and Capital Markets Solutions Conference Cover image Optimal life cycle portfolio choice with variable annuities offering liquidity and investment downside protection Vanya Horneffa, , Raimond Maurera, , , Olivia S. Mitchellb, , Ralph Rogallaa, citation courtesy of