Life Cycle Annuity Valuation / B. Douglas Bernheim.

By:

Bernheim, B. Douglas

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w1511.Publication details: Cambridge, Mass. National Bureau of Economic Research 1984.Description: 1 online resource: illustrations (black and white)Subject(s):

H - Public Economics

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: In this paper, we argue that actuarial valuation of annuity benefit streams is theoretically inconsistent with the assumption of pure lifecycle motives. Instead, we show that the simple discounted value of future benefits (ignoring the possibility of death) is often a good approximation to the relevant concept of value. This observation motivates a re-examination of existing empirical evidence concerning the effects of Social Security on personal savings, retirement, and the distribution of wealth, as well as the proper computation of age-wealth profiles. The conceptual points raised here are also relevant for evaluating the relative merits of wage and consumption taxes. In each case,we argue that the use of simple, rather than actuarial discounting of survival-contingent income streams dramatically alters the conclusions of previous studies.

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Working Paper	Biblioteca Digital	Colección NBER	nber w1511 (Browse shelf(Opens below))	Not For Loan

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December 1984.

In this paper, we argue that actuarial valuation of annuity benefit streams is theoretically inconsistent with the assumption of pure lifecycle motives. Instead, we show that the simple discounted value of future benefits (ignoring the possibility of death) is often a good approximation to the relevant concept of value. This observation motivates a re-examination of existing empirical evidence concerning the effects of Social Security on personal savings, retirement, and the distribution of wealth, as well as the proper computation of age-wealth profiles. The conceptual points raised here are also relevant for evaluating the relative merits of wage and consumption taxes. In each case,we argue that the use of simple, rather than actuarial discounting of survival-contingent income streams dramatically alters the conclusions of previous studies.