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Flexible Life Annuities

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  • ALEXIS DIRER

Abstract

Annuity contracts typically deliver a stream of income at a predetermined level in order to insure against the risk of longevity. This paper explores whether flexible annuities, which give subscribers the possibility to choose between different levels of annuity, are welfare enhancing. In the case where agents gradually discover their actual probability of survival, a predetermined and “one‐size‐fits‐all” annuity plan is optimal. If an expenditure risk is added along with the longevity risk, a flexible annuity plan is better even though the consumption path cannot be isolated from uninsured expenses anymore.

Suggested Citation

  • Alexis Direr, 2010. "Flexible Life Annuities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 43-55, February.
    • Handle: RePEc:bla:jpbect:v:12:y:2010:i:1:p:43-55
    DOI: 10.1111/j.1467-9779.2009.01446.x
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    1. Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2005. "Annuities and Individual Welfare," American Economic Review, American Economic Association, vol. 95(5), pages 1573-1590, December.
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    Cited by:

    1. Hippolyte d'Albis & Johanna Etner, 2018. "Illiquid life annuities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(2), pages 277-297, April.
    2. Thomas Davidoff, 2009. "Housing, Health, and Annuities," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 31-52, March.
    3. Mathias Kifmann, 2010. "The Design of Pension Pay Out Options When the Health Status during Retirement Is Uncertain," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 127-149, February.
    4. Moshe A. Milevsky & Thomas S. Salisbury, 2013. "Optimal Retirement Tontines for the 21st Century: With Reference to Mortality Derivatives in 1693," Papers 1307.2824, arXiv.org.

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