02391oam 22004933a 450 991071732110332120230622022542.0(NBER)w19211(CKB)3280000000025230(OCoLC)1262126420(EXLCZ)99328000000002523020230622d2013 fy 0engurcnu||||||||txtrdacontentcrdamediacrrdacarrierOptimal Annuitization with Stochastic Mortality Probabilities /Felix Reichling, Kent SmettersCambridge, MassNational Bureau of Economic Research2013Washington, DC :Congressional Budget Office,2013.1 online resourceillustrations (black and white);NBER working paper seriesno. w19211July 2013.Includes bibliographical references (pages 41-44).The conventional wisdom dating back to Yaari (1965) is that households without a bequest motive should fully annuitize their investments. Numerous market frictions do not break this sharp result. We modify the Yaari framework by allowing a household's mortality risk itself to be stochastic. Annuities still help to hedge longevity risk, but they are now subject to valuation risk. Valuation risk is a powerful gateway mechanism for numerous frictions to reduce annuity demand, even without ad hoc "liquidity constraints." We find that most households should not annuitize any wealth. The optimal level of aggregate net annuity holdings is likely even negative.Working Paper Series (National Bureau of Economic Research)no. w19211.Microeconomic Behavior: Underlying PrinciplesjelcHousehold Saving • Personal FinancejelcHouseholdjelcMicroeconomic Behavior: Underlying PrinciplesHousehold Saving • Personal FinanceHouseholdD01jelcD14jelcH31jelcReichling Felix1365087Smetters Kent292064National Bureau of Economic Research.MaCbNBERMaCbNBERBOOK9910717321103321Optimal Annuitization with Stochastic Mortality Probabilities3386734UNINA