Health Cost Risk

A Potential Solution To the Annuity Puzzle

Datos Bibliográficos

ID9715955
AutoresKim Peijnenburg (Bocconi University), Theo Nijman (Bocconi University), Bas J M Werker (0000-0001-9007-0755, Bocconi University)
Año2017
Volumen127
Número603
Páginas1598-1625
Fecha de publicación2017-08-01
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaThe Economic Journal (JOURNAL)
Identificadores de la revistaISSN: 0013-0133 • E-ISSN: 1468-0297
EditorialOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12354
OpenAlexW3124753964
IdiomaEN
Citas recibidas1
Referencias citadas44

We find that health cost risk lowers optimal annuity demand at retirement. If medical expenses can be sizeable early in retirement, full annuitisation at retirement is no longer optimal because agents do not have enough time to build a liquid wealth buffer. Furthermore, large deviations from optimal annuitisation levels lead to small utility differences. Our results suggest that health cost risk can explain a large proportion of empirically observed annuity choices. Finally, allowing additional annuitisation after retirement results in welfare gains of at most 2.5% when facing health cost risk, and negligible gains without this risk

Actuarial science · Annuity · Economics · Life annuity · Medical expenses · Pension · Welfare · Finance · Financial Literacy, Pension, Retirement Analysis · Global Health Care Issues · Insurance, Mortality, Demography, Risk Management · Medicine