Join at noon on Wednesday, June 19, 2013
For a Lunch Meeting with Guest Speaker:
Congressional Budget Office Wharton School
Who will discuss a new CBO paper:
“Optimal Annuitization with Stochastic Mortality Probabilities”
325 7th St. NW
(Lunch will be provided)
The conventional wisdom dating back to Yaari (1965) is that households without a bequest motive should fully annuitize their investments. Various market frictions do not break this sharp result. This paper demonstrates that incomplete annuitization can be optimal in the presence of stochastic mortality probabilities, even without liquidity constraints. Moreover, stochastic mortality is a mechanism for various frictions to reduce annuity demand. Simulation evidence demonstrates that it is optimal for most households to not annuitize any wealth. Optimal aggregate net annuity holdings is likely even negative.