Bequest motives and the annuity puzzle

Lee M. Lockwood*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

67 Scopus citations

Abstract

Few retirees annuitize any wealth, a fact that has so far defied explanation within the standard framework of forward-looking, expected utility-maximizing agents. Bequest motives seem a natural explanation. Yet the prevailing view is that people with plausible bequest motives should annuitize. part of their wealth, and thus that bequest motives cannot explain why most people do not annuitize. any wealth. I show, however, that people with plausible bequest motives are likely to be better off not annuitizing any wealth at available rates. The evidence suggests that bequest motives play a central role in limiting the demand for annuities.

Original languageEnglish (US)
Pages (from-to)226-243
Number of pages18
JournalReview of Economic Dynamics
Volume15
Issue number2
DOIs
StatePublished - Apr 1 2012

Keywords

  • Annuities
  • Bequest motives
  • Life-cycle model

ASJC Scopus subject areas

  • Economics and Econometrics

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