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Research Details

UM09-12 - Market-based Guarantees in Investment-linked Decumulation Pension Programs: Pricing, Risk Management, and Financial Well-being for Retirees

Raimond H. Maurer

Some policy analysts have voiced concerns that financially inexperienced individuals may fare poorly in personal retirement accounts, to the extent that they do not fully understand the risks associated with investments as well as spending options. One way to possibly overcome such potential risks would be to incorporate income or rate of return guarantees into defined contribution private-account type plans. Such guarantees could be provided by the government or by private markets, during the accumulation as well the decumulation phase. This project will study various ways of designing such guarantees and evaluate their economic consequences in terms of pricing, risk management, and consumption and saving patterns within a lifetime utility framework. The project will be of interest to policymakers interested in the interaction of Social Security and other public/private retirement income programs.

Publications (PDF)

Mortality Contingent Claims: Impact of Capital Market, Income, and Interest Rate Risk