Longevity-Insured Retirement Distributions from Pension Plans: Market and Regulatory Issues

Increasing average longevity and the trend toward early retirement make the risk of outliving one's resources more widespread among the elderly population. Annuities insure individuals against financial risks associated with longevity uncertainty. This paper explores the extent to which retirees can and do insure themselves against longevity risk in private pension plans. The shift from defined benefit (DB) plans to defined contribution (DC) plans means a reduction in the opportunities available to retirees to annuitize retirement assets because only a small number of DC plans include life annuity as a payout option. The paper discusses some of the options available to policy makers interested in increasing the annuitization rates.