Annuity Valuation, Long‐Term Care, and Bequest Motives

John Ameriks, Andrew Caplin, Steven Laufer and Stijn Van Nieuwerburgh

in Recalibrating Retirement Spending and Saving

Published in print September 2008 | ISBN: 9780199549108
Published online January 2009 | e-ISBN: 9780191720734 | DOI:
Annuity Valuation, Long‐Term Care, and Bequest Motives

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Financial security in retirement has traditionally meant having a steady flow of annuity income as long as one lives — a definition enshrined in the Social Security system. Earlier research has stressed a more holistic approach, which focuses on the match between resources and spending needs. Using this formulation this chapter estimates annuity values given long-term care concerns and bequest motives, where these estimated values are consistent with low observed demand for standard annuities. The chapter extends this model to value non-standard annuities with various security-enhancing features that may be of value to retirees.

Keywords: bequest; precautionary motive; long-term-care insurance; Medicaid aversion; consumption; reversible annuity; longevity insurance; healthcare; health shock

Chapter.  9046 words.  Illustrated.

Subjects: Pensions

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