How Changes in Longevity Annuity Prices and Longevity Risk Affect Retirement Income Adequacy

Source: Youngkyun Park, Employee Benefit Research Institute, Vol. 32 No. 6, June 2011

From the abstract:
FOLLOW-UP STUDY: Building on the May 2011 EBRI Issue Brief, this article analyzes how changes in longevity annuity prices and longevity risk affect retirement income adequacy of retirees facing three different types of risk–investment income, longevity, and long-term care risk.

CHANGING PRICES AND RISK: As the price of a longevity annuity increases, and as longevity risk grows, more initial retirement wealth is needed and the degree of annuitization needs to be increased–especially to achieve a 90 percent chance of adequacy (the inverse is true as well). The optimal degree of annuitization with a longevity annuity, however, depends on how much an individual’s retirement portfolio is invested in equities.

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