Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



Two common explanations for the dearth of voluntary annuitization are bequest motives and liquidity demand, both of which create implicit costs for each annuitized dollar. Whenever costs prevent full annuitization, we demonstrate that efficient annuity allocations concentrate annuity-funded consumption late in life. This implies traditional immediate payout annuities are inefficient relative to recently introduced “delayed payout annuities” which have survival-contingent payments beginning years after purchase. For typical examples, a six percent delayed payout allocation has utility comparable to a thirty-nine percent immediate annuity allocation. Since retirees appear averse to large annuity purchases, delayed payout annuities could significantly improve retiree welfare.


annuities, annuitization, Social Security, pensions, longevity risk, insurance

JEL Code

D11, D91, E21, H55, J14, J26

Working Paper Number


Copyright/Permission Statement

The views expressed herein are those of the authors and not necessarily those of Financial Engines. Opinions and errors are solely those of the authors and not of the institutions with whom the authors are affiliated. © 2007 Pension Research Council. All rights reserved.


The authors thank William Sharpe, Geert Bekaert, Steve Grenadier, and Jim Shearer for many excellent comments and suggestions. Any remaining errors or omissions are the authors' responsibility.

Included in

Economics Commons



Date Posted: 17 December 2019