Horneff, Vanya

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  • Publication
    Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection
    (2013-07-01) Horneff, Vanya; Mitchell, Olivia S; Maurer, Raimond; Rogalla, Ralph
    We evaluate lifecycle consumption and portfolio allocation patterns resulting from access to Guaranteed Minimum Withdrawal Benefit (GMWB) variable annuities, one of the most rapidly-growing financial innovations over the last two decades. A key feature of these products is that they offer access to equity investments with downside protection, hedging of longevity risk, and partially-refundable premiums. Welfare rises since policyholders exercise the product’s flexibility by taking withdrawals and dynamically adjusting their portfolios and consumption streams. Consistent with observed behavior, differences across individuals’ cash out and annuitization patterns result from variations in realized equity market returns and labor income trajectories
  • Publication
    Putting the Pension Back in 401(k) Plans: Optimal versus Default Longevity Income Annuities
    (2023-01-13) Horneff, Vanya; Maurer, Raimond; Mitchell, Olivia S
    Most retirees take payouts from their defined contribution pensions as lump sums, but the US Treasury recently moved to encourage firms and individuals to convert some of the $15 trillion in plan balances into longevity income annuities paying lifetime benefits from age 85 onward. We evaluate the welfare implications of this reform using a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations. We show that defaulting a fixed fraction of workers’ 401(k) assets over a dollar threshold is a cost-effective and appealing way to enhance retirement security, enhancing welfare by up to 20% of retiree plan accruals.
  • Publication
    How Will Persistent Low Expected Returns Shape Household Economic Behavior?
    (2018-10-02) Horneff, Vanya; Maurer, Raimond; Mitchell, Olivia S
    Many believe that global capital markets will generate lower returns in the future versus the past. We examine how persistently lower real returns will reshape work, retirement, saving, and investment behavior of older persons using a calibrated dynamic life cycle model. In a low return regime, workers build up less wealth in their tax-qualified 401(k) accounts versus the past, claim social security benefits later, and work more. Moreover, the better-educated are more sensitive to real interest rate changes, and the least-educated alter their behavior less. Interestingly, wealth inequality is lower in periods of persistent low expected returns.