Fixed and variable longevity annuities in defined contribution plans: optimal retirement portfolios taking social security into account

  • This paper investigates retirees’ optimal purchases of fixed and variable longevity income annuities using their defined contribution (DC) plan assets and given their expected Social Security benefits. As an alternative, we also evaluate using plan assets to boost Social Security benefits through delayed claiming. We determine that including deferred income annuities in DC accounts is welfare enhancing for all sex/education groups examined. We also show that providing access to well-designed variable deferred annuities with some equity exposure further enhances retiree wellbeing, compared to having access only to fixed annuities. Nevertheless, for the least educated, delaying claiming Social Security is preferred, whereas the most educated benefit more from using accumulated DC plan assets to purchase deferred annuities.

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Author:Vanya HorneffGND, Raimond MaurerORCiDGND, Olivia S. MitchellORCiDGND
Series (Serial Number):CFS working paper series (No. 684)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Year of Completion:2023
Year of first Publication:2023
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2023/02/27
Tag:annuity; delayed claiming; household finance; lifecycle saving; longevity; retirement plan
Volume:January 8, 2023
Page Number:36
We also acknowledge research support from the TIAA Institute as well as funding provided by the German Investment and Asset Management Association (BVI) and the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania.
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:D Microeconomics / D1 Household Behavior and Family Economics / D14 Personal Finance
D Microeconomics / D9 Intertemporal Choice and Growth / D91 Intertemporal Consumer Choice; Life Cycle Models and Saving
G Financial Economics / G1 General Financial Markets / G11 Portfolio Choice; Investment Decisions
G Financial Economics / G2 Financial Institutions and Services / G22 Insurance; Insurance Companies
Licence (German):License LogoDeutsches Urheberrecht