Mortality, Heterogeneity and the Distributional Consequences of Mandatory Annuitization

TitleMortality, Heterogeneity and the Distributional Consequences of Mandatory Annuitization
Publication TypeJournal Article
Year of Publication2008
AuthorsGong, G, Webb, A
JournalJournal of Risk and Insurance
Call Numberwp_2006/CRRwp2006-11.pdf
KeywordsDemographics, Expectations, Health Conditions and Status, Net Worth and Assets

This article investigates the distributional consequences of mandatory annuitization. Using data from the Health and Retirement Study (HRS), we calculate the relationship between socio-economic status and a utility based measure of annuity value. We find considerable variation between groups once we take account of not only socio-economic differences in mortality, but also pre-annuitized wealth and longevity risk pooling in marriage. Using HRS data on subjective survival probabilities, we then construct a subjective life table for each individual in the HRS. We show that these tables vary appropriately between groups and aggregate closely to group level averages. We calculate the value each household would place on annuitization, based on the husband and wife's subjective life tables, and the household's degree of risk-aversion and proportion of pre-annuitized wealth. A significant minority would perceive themselves as suffering a net loss from mandatory annuitization.

Endnote Keywords

Annuities/socioeconomic status/mortality/Subjective Probabilities of Survival

Endnote ID


Citation Key7196