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Optimal allocation for stock market-excluded retirees: Effects of interest rates, longevity risk, and upfront fees

Author

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  • Atta Mills, Ebenezer Fiifi Emire
  • Anyomi, Siegfried Kafui
  • Koumba, Ur
  • Zhong, Zhuoqing
  • Liao, Yuexin

Abstract

This paper studies the decision-making dynamics of stock market-excluded retirees, focusing on the optimal allocation of retirement wealth among consumption, risk-free assets, and single premium immediate annuities. The analysis centers on two pivotal factors: insurer interest rates and longevity risk. The study introduces new dimensions by highlighting the modeled financial environment’s optimal investment–consumption–annuitization profiles under different market scenarios. Additionally, insights on the low demand for life annuities are offered, attributing a significant part to the impact of upfront fees. Employing a life-cycle consumption framework, the paper advocates adopting a commission-free model, enabling registered investment advisors to market annuities with periodic assets under management fees to revitalize annuity demand and bolster retirement security.

Suggested Citation

  • Atta Mills, Ebenezer Fiifi Emire & Anyomi, Siegfried Kafui & Koumba, Ur & Zhong, Zhuoqing & Liao, Yuexin, 2024. "Optimal allocation for stock market-excluded retirees: Effects of interest rates, longevity risk, and upfront fees," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013497
    DOI: 10.1016/j.frl.2024.106320
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