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Living Longer in High Longevity Risk

Author

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  • Rachel WINGENBACH

    (University of Minnesota-Morris)

  • Jong-Min KIM

    (University of Minnesota-Morris)

  • Hojin JUNG

    (Jeonbuk National University)

Abstract

There is considerable uncertainty regarding changes in future mortality rates. This article investigates the impact of such longevity risk on discounted government annuity benefits for retirees. It is critical to forecast more accurate future mortality rates to improve our estimation of an expected annuity payout. Thus, we utilize the Lee–Carter model, which is well-known as a parsimonious dynamic mortality model. We find strong evidence that female retirees are likely to receive more public lifetime annuity than males in the USA, which is associated with systematic mortality rate differences between genders. A cross-country comparison presents that the current public annuity system would not fully cover retiree's longevity risk. Every additional year of life expectancy leaves future retirees exposed to high risk, arising from high volatility of lifetime annuities. Also, because the growth in life expectancy is higher than the growth of expected public pension, there will be a financial risk to retirees.

Suggested Citation

  • Rachel WINGENBACH & Jong-Min KIM & Hojin JUNG, 2020. "Living Longer in High Longevity Risk," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 86(1), pages 47-86, March.
    • Handle: RePEc:ctl:louvde:v:86:y:2020:i:1:p:47-86
    DOI: 10.1017/dem.2019.20
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    More about this item

    Keywords

    Lee-Carter model; Longevity risk; Mortality rate;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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