Demand for Retirement Products: An Analysis of Individual Welfare

Abstract

We study the demand for retirement products given access to innovative plans which depend on the realized survival probabilities, like tontines, in addition to traditional annuities. Preferences of agents are modeled by a generalized life-cycle utility function allowing for temporal risk aversion. We identify conditions for pricing bounds under which agents subject to temporal risk aversion prefer to invest positive fractions of wealth in both annuities and tontines to full annuitization. In an extended model with differential mortality and wealth, we analyze a utilitarian social planner's retirement product demand, focusing on wealth transfers between the groups.