Fixed and Variable Longevity Annuities in Defined Contribution Plans: Optimal Retirement Portfolios Taking Social Security into Account

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Wharton Pension Research Council Working Papers
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lifecycle saving
retirement plan
annuity
longevity
delayed claiming
household finance
Economics
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Horneff, Vanya
Maurer, Raimond
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This paper investigates retirees’ optimal purchases of fixed and variable longevity income annuities using their defined contribution (DC) plan assets and given their expected Social Security benefits. As an alternative, we also evaluate using plan assets to boost Social Security benefits through delayed claiming. We determine that including deferred income annuities in DC accounts is welfare enhancing for all sex/education groups examined. We also show that providing access to well-designed variable deferred annuities with some equity exposure further enhances retiree wellbeing, compared to having access only to fixed annuities. Nevertheless, for the least educated, delaying claiming Social Security is preferred, whereas the most educated benefit more from using accumulated DC plan assets to purchase deferred annuities.

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2023-01-08
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<p>We acknowledge research support from the TIAA Institute as well as funding provided by the German Investment and Asset Management Association (BVI) and the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania. </p>
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