Individual survivor fund account: The impact of bequest motives on tontine participation

Abstract

We introduce a new model for individual survivor fund account with bequest that allows the tontine's participants to leave inheritances to their heirs. Two proposed designs, constant and variable participation, are examined through the lens of an individual account, addressing optimal investment and bequest proportions. Our formulation captures two types of bequest motives: the relative concern between terminal benefit and premature bequest and the intention to smooth the bequest plan. Our numerical illustrations show that the individual's willingness to participate in the longevity risk pool will decrease with these two bequest motive levels and address the question of when and with what motive level the individual will join the pool. Furthermore, we incorporate labor income and consumption in the participant's optimization problem and perform a welfare analysis thereon.