Longevity risk, retirement savings, and financial innovation
Journal
Journal of Financial Economics
Subject
Finance
Publishing details
Publication Year
2012
Abstract
Over the last couple of decades unprecedented increases in life expectancy have raised important concerns for retirement savings. We solve a life-cycle model with longevity risk, which can be hedged through endogenous saving and retirement decisions. We investigate the benefits of financial assets designed to hedge the shocks to survival probabilities. When longevity risk is calibrated to match forward-looking projections, those benefits are substantial. This lends support to the idea that such hedging should be pursued by defined benefit pension plans on behalf of their beneficiaries. Finally, we draw implications for optimal security design.
Keywords
Life cycle savings; Mortality risk; Pension plans
Available on ECCH
No
