Skip to main content Accessibility help
×
Home
Hostname: page-component-684899dbb8-gblv7 Total loading time: 0.18 Render date: 2022-05-22T13:38:52.533Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "useRatesEcommerce": false, "useNewApi": true }

Self-Annuitization, Consumption Shortfall in Retirement and Asset Allocation: The Annuity Benchmark

Published online by Cambridge University Press:  08 January 2003

PETER ALBRECHT
Affiliation:
University of Mannheim, D-68131 Mannheim (Schloss), Germany e-mail: risk@bwl.uni-mannheim.de
RAIMOND MAURER
Affiliation:
Johann Wolfgang Goethe University of Frankfurt, D-60054 Frankfurt/Main, Senckenberganlage Germany e-mail: RMaurer@wiwi.uni-frankfurt.de

Abstract

The present paper considers a retiree of a certain age who is endowed with a certain amount of wealth and is facing alternative investment opportunities. One possibility is to buy a single premium immediate (participating) annuity-contract. This insurance product pays a life-long pension payment of a certain amount, depending e.g. on the age of the retiree, the operating cost of the insurance company and the return the company is able to realize from its investments. The alternative possibility is to invest the single premium into a portfolio of mutual funds and to periodically withdraw a fixed amount that is assumed to be equivalent to the consumption stream generated by the annuity. The particular advantage of this self-annuitization strategy compared to the life annuity is its greater liquidity and the possibility of leaving money for heirs. However, the risk of self-annuitization is to outlive the assets before the uncertain date of death. The risk can thus be specified by considering the probability of running out of money before the uncertain date of death. The determination of this personal probability of consumption shortfall with respect to German insurance and capital market conditions is the objective of this paper.

Type
Research Article
Copyright
© 2002 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)
49
Cited by

Save article to Kindle

To save this article to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Self-Annuitization, Consumption Shortfall in Retirement and Asset Allocation: The Annuity Benchmark
Available formats
×

Save article to Dropbox

To save this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Dropbox account. Find out more about saving content to Dropbox.

Self-Annuitization, Consumption Shortfall in Retirement and Asset Allocation: The Annuity Benchmark
Available formats
×

Save article to Google Drive

To save this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Google Drive account. Find out more about saving content to Google Drive.

Self-Annuitization, Consumption Shortfall in Retirement and Asset Allocation: The Annuity Benchmark
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *