Precautionary Savings and the Demand for Annuities

02/06/1996 |  Strawczynski Michel


Two well-known results in the field of annuities are: (1) egoistic agents should annuitize all their wealth

and (2) altruistic agents should segment their savings between riskless bonds (for bequests) and

annuities (for consumption). Given these two results, it is puzzling to note that private annuity markets

are thin. In this paper we show that in the presence of precautionary savings, altruistic agents reduce the

demand for annuities. Thus, the lack of private annuity markets becomes less than a puzzle, and maybe

explained by the existence of a low demand, which is satisfied by existing pension arrangements.

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