Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



The latest generation of variable annuity contracts contains equity put options plus longevity insurance. The marketing material for these products often claims that these new riders should induce purchasers to take on more financial risk. This chapter examines whether this is indeed the case. Using a unique database, we document that policyholders do in fact adopt higher equity exposures when these riders are selected. We also examine the theoretical merits of the marketing advice, by deriving the optimal asset allocation in the presence of these guarantees. We conclude that more aggressive equity allocations can indeed be justified in many, although not all, product structures.


The published version of this Working Paper may be found in the 2008 publication: Recalibrating Retirement Spending and Saving.


variable annuities, longevity risk, equity

Working Paper Number


Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2007 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The authors acknowledge funding from the IFID Centre and are especially grateful to LIMRA for providing access to their data. The authors also acknowledge helpful comments and discussions with Shlomo Benartzi, Matthew Drinkwater, Huaxiong Huang, Thomas Salisbury and Eric Sondergeld.

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Economics Commons



Date Posted: 16 December 2019