Efficient Annuitization with Delayed Payout Annuities PDF Download
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Author: Jason S. Scott
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
Contrary to economic theory, few retirees voluntarily annuitize much, if any, of their wealth. This behavior has been at least partly explained by factors such as bequest motives, a demand for liquid wealth, or a restrictive annuity investment universe, all of which impose implicit costs on annuitization. When such costs are considered, utility maximization implies a preference for annuity contracts that are efficient in the sense that they deliver maximum benefit for a given annuity investment. In a standard lifecycle setting, we find that efficient annuity allocations involve no annuity payouts in early years, while later years are fully funded by annuities. Importantly, insurance companies have recently introduced annuity contracts with payouts that begin in the future, referred to as delayed payout annuities. We find that delayed payout annuities are highly efficient. For a typical example, half the potential annuity welfare gains require only a six percent allocation to delayed payout annuities compared to a thirty-nine percent allocation to immediate annuities. Because of their efficiency, delayed payout annuities can substantially improve welfare, particularly for retirees unwilling to annuitize large fractions of their wealth.
Author: Jason S. Scott
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
Contrary to economic theory, few retirees voluntarily annuitize much, if any, of their wealth. This behavior has been at least partly explained by factors such as bequest motives, a demand for liquid wealth, or a restrictive annuity investment universe, all of which impose implicit costs on annuitization. When such costs are considered, utility maximization implies a preference for annuity contracts that are efficient in the sense that they deliver maximum benefit for a given annuity investment. In a standard lifecycle setting, we find that efficient annuity allocations involve no annuity payouts in early years, while later years are fully funded by annuities. Importantly, insurance companies have recently introduced annuity contracts with payouts that begin in the future, referred to as delayed payout annuities. We find that delayed payout annuities are highly efficient. For a typical example, half the potential annuity welfare gains require only a six percent allocation to delayed payout annuities compared to a thirty-nine percent allocation to immediate annuities. Because of their efficiency, delayed payout annuities can substantially improve welfare, particularly for retirees unwilling to annuitize large fractions of their wealth.
Author: OECD
Publisher: OECD Publishing
ISBN: 9264265317
Category :
Languages : en
Pages : 110
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Book Description
This publication helps policy makers to better understand annuity products and the guarantees they provide in order to optimise the role that these products can play in financing retirement.
Author: Patrick J. Collins
Publisher: CFA Institute Research Foundation
ISBN: 1944960023
Category : Business & Economics
Languages : en
Pages : 27
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Book Description
Annuitization is one asset management strategy for retirees seeking to secure lifetime income. The US annuity marketplace offers a variety of annuity contracts, including single premium annuities, advanced life deferred annuities, variable annuities with lifetime income guarantee riders, and ruin contingent deferred annuities. Advisers seeking to provide guidance to clients in or near retirement can benefit by understanding (1) the arguments both for and against annuitization and (2) how a client’s interests might be best represented in the marketplace. Important annuity contract provisions are highlighted and briefly discussed so the adviser can become more familiar with retirement-planning options.
Author: Kerry Pechter
Publisher: John Wiley & Sons
ISBN: 1118051939
Category : Business & Economics
Languages : en
Pages : 373
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Book Description
Why look into annuities? If you’re a Baby Boomer with little or no pension and most of your money in low-interest savings accounts, an annuity may be the key to a secure and comfortable retirement. How can you find out whether an annuity is right for you? Read Annuities For Dummies, 3rd Edition. This completely revised and updated, plain-English guide is packed with the latest information on choosing the best annuity for your retirement needs. You’ll find out exactly what annuities are, whether they’re the right financial vehicle for you, and which of the many annuity options might have your name on it. You’ll learn the ins and outs of using annuities to fund your retirement years, figure out whether to stress investments with insurance or insurance with investments, and find out how the right combination of annuities can help you squeeze more income out of your savings that any other financial tool. Discover how to: Identify the main types of annuities Weigh the pros and cons of annuities for yourself Minimize the complexity and cost of your annuity investment Figure out how much money to commit Avoid common annuity pitfalls Create an income you can’t outlive The time to start securing your financial future is now. Annuities For Dummies, 3rd Edition, gives you knowledge, insider tips, and expert advice you need to make your money do its best for you.
Author: Wai-sum Chan
Publisher: World Scientific
ISBN: 9811243298
Category : Business & Economics
Languages : en
Pages : 366
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Book Description
This book provides a thorough understanding of the fundamental concepts of financial mathematics essential for the evaluation of any financial product and instrument. Mastering concepts of present and future values of streams of cash flows under different interest rate environments is core for actuaries and financial economists. This book covers the body of knowledge required by the Society of Actuaries (SOA) for its Financial Mathematics (FM) Exam.The third edition includes major changes such as an addition of an 'R Laboratory' section in each chapter, except for Chapter 9. These sections provide R codes to do various computations, which will facilitate students to apply conceptual knowledge. Additionally, key definitions have been revised and the theme structure has been altered. Students studying undergraduate courses on financial mathematics for actuaries will find this book useful. This book offers numerous examples and exercises, some of which are adapted from previous SOA FM Exams. It is also useful for students preparing for the actuarial professional exams through self-study.
Author: Salvador Valdés Prieto
Publisher:
ISBN:
Category : Annuities
Languages : en
Pages : 68
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Book Description
Author: Moshe A. Milevsky
Publisher: Cambridge University Press
ISBN: 1139454862
Category : Business & Economics
Languages : en
Pages : 301
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Book Description
This 2006 book introduces and develops the basic actuarial models and underlying pricing of life-contingent pension annuities and life insurance from a unique financial perspective. The ideas and techniques are then applied to the real-world problem of generating sustainable retirement income towards the end of the human life-cycle. The role of lifetime income, longevity insurance, and systematic withdrawal plans are investigated in a parsimonious framework. The underlying technology and terminology of the book are based on continuous-time financial economics by merging analytic laws of mortality with the dynamics of equity markets and interest rates. Nonetheless, the book requires a minimal background in mathematics and emphasizes applications and examples more than proofs and theorems. It can serve as an ideal textbook for an applied course on wealth management and retirement planning in addition to being a reference for quantitatively-inclined financial planners.
Author: Wade Donald Pfau
Publisher: McLean Asset Management Corporation
ISBN: 9781945640049
Category : Finance, Personal
Languages : en
Pages : 156
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Book Description
Reverse mortgages have been surrounded by negativity. They were often mentioned alongside phrases like "last resort," "out of money," and "bad choice." In 2014, intrigued by the seemingly universal bad rap reverse mortgages had cultivated, Dr. Wade Pfau began researching them in depth. Over the course of the next year, he came to the conclusion that reverse mortgages aren't inherently a bad idea, though they are often misunderstood and not used in a most beneficial way. In fact, Dr. Pfau realized that reverse mortgages---when used correctly---can provide an added layer of security for retirees and allow them to enjoy retirement more by gaining liquidity from an illiquid asset. This second edition of the book is fully revised and updated for the modification of reverse mortgage rules affecting applications after October 2, 2017.
Author: Wade Donald Pfau
Publisher: Retirement Researcher Guid
ISBN: 9781945640063
Category : Business & Economics
Languages : en
Pages : 368
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Book Description
Two fundamentally different philosophies for retirement income planning, which I call probability-based and safety-first, diverge on the critical issue of where a retirement plan is best served: in the risk/reward trade-offs of a diversified and aggressive investment portfolio that relies primarily on the stock market, or in the contractual protections of insurance products that integrate the power of risk pooling and actuarial science alongside investments. The probability-based approach is generally better understood by the public. It advocates using an aggressive investment portfolio with a large allocation to stocks to meet retirement goals. My earlier book How Much Can I Spend in Retirement? A Guide to Investment-Based Retirement Strategies provides an extensive investigation of probability-based approaches. But this investments-only attitude is not the optimal way to build a retirement income plan. There are pitfalls in retirement that we are less familiar with during the accumulation years. The nature of risk changes. Longevity risk is the possibility of living longer than planned, which could mean not having resources to maintain the retiree's standard of living. And once retirement distributions begin, market downturns in the early years can disproportionately harm retirement sustainability. This is sequence-of-returns risk, and it acts to amplify the impacts of market volatility in retirement. Traditional wealth management is not equipped to handle these new risks in a fulfilling way. More assets are required to cover spending goals over a possibly costly retirement triggered by a long life and poor market returns. And yet, there is no assurance that assets will be sufficient. For retirees who are worried about outliving their wealth, probability-based strategies can become excessively conservative and stressful. This book focuses on the other option: safety-first retirement planning. Safety-first advocates support a more bifurcated approach to building retirement income plans that integrates insurance with investments, providing lifetime income protections to cover spending. With risk pooling through insurance, retirees effectively pay an insurance premium that will provide a benefit to support spending in otherwise costly retirements that could deplete an unprotected investment portfolio. Insurance companies can pool sequence and longevity risks across a large base of retirees, much like a traditional defined-benefit company pension plan or Social Security, allowing for retirement spending that is more closely aligned with averages. When bonds are replaced with insurance-based risk pooling assets, retirees can improve the odds of meeting their spending goals while also supporting more legacy at the end of life, especially in the event of a longer-than-average retirement. We walk through this thought process and logic in steps, investigating three basic ways to fund a retirement spending goal: with bonds, with a diversified investment portfolio, and with risk pooling through annuities and life insurance. We consider the potential role for different types of annuities including simple income annuities, variable annuities, and fixed index annuities. I explain how different annuities work and how readers can evaluate them. We also examine the potential for whole life insurance to contribute to a retirement income plan. When we properly consider the range of risks introduced after retirement, I conclude that the integrated strategies preferred by safety-first advocates support more efficient retirement outcomes. Safety-first retirement planning helps to meet financial goals with less worry. This book explains how to evaluate different insurance options and implement these solutions into an integrated retirement plan.
Author: Moshe A. Milevsky
Publisher: Cambridge University Press
ISBN: 1107076129
Category : Business & Economics
Languages : en
Pages : 275
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Book Description
The book reviews the finance, economics, and history of tontines, and argues that they should be resurrected in the twenty-first century.
