Department of Economics and Business Economics

Annuitization and aggregate mortality risk

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It is well established that annuities can fully diversify idiosyncratic mortality risks. However, survival rates at the cohort level are changing, raising the question what is the scope of annuities in the presence of aggregate mortality risk? In an overlapping generations setting, we show that risk free annuities exist, but offer a return below the (fair) certainty equivalent return, and agents do not fully annuitize their savings. Higher aggregate mortality risk increases savings and thus the mean level of the capital stock. This lowers the mean rate of return on capital, the survival premium on annuities and the share of individual savings in annuities.

Original languageEnglish
JournalJournal of Risk and Insurance
Pages (from-to)79-99
Number of pages21
Publication statusPublished - Mar 2021

    Research areas

  • aggregate mortality risk, annuitization, annuity markets, dynamic efficiency, overlapping generations models

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