According to standard economic models, a risk-averse consumer who faces uncertainty about
length-of-life should place a high value on life annuities that provide guaranteed income for life.
Yet numerous studies show that few consumers voluntarily annuitize their retirement savings. As
public and private pension systems around the world continue the ongoing shift from traditional
defined benefit plans, which typically pay benefits for life, to defined contribution structures
which rarely require annuitization, retirees find themselves increasingly exposed to longevity
risk—the risk of being unable to sustain their consumption should they live longer than average.
Presented at the American Economic Association, January 5, 2008.
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