Purchasing-Power Annuities: Financial Innovation for Stable Real Retirement Income in an Inflationary Environment / Zvi Bodie.

By:

Bodie, Zvi

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0442.Publication details: Cambridge, Mass. National Bureau of Economic Research 1980.Description: 1 online resource: illustrations (black and white)Subject(s):

E - Macroeconomics and Monetary Economics

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: This paper is organized as follows: The first part of the paper introduces the topic. In the next part, we explore the inadequacies of conventional and equity-based variable annuities in an inflationary environment by contrasting them with a hypothetical PPA. We then try to assess the suitability of money market instruments hedged with commodity futures as the asset base for PPA's, and consider the possibility of having financial institutions offer them to the public. The major conclusion of the paper is that private pension plans could offer retiring employees a choice between a conventional money-fixed annuity or a PPA, both of which would cost theemployer the same amount of money to fund, although this option would require the PPA benefitlevel in the first few years of retirement to be lower than that of the conventional annuity.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0442 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w0439 Expectations and the Forward Exchange Rate /	nber w0440 Wage Expectations in the Labor Market: Survey Evidence on Rationality /	nber w0441 Effect of Minimum Wages on Human Capital Formation /	nber w0442 Purchasing-Power Annuities: Financial Innovation for Stable Real Retirement Income in an Inflationary Environment /	nber w0443 Federal Deficit Policy and the Effects of Public Debt Shocks /	nber w0444 On Estimating the Expected Return on the Market: An Exploratory Investigation /	nber w0445 The Role of Intergenerational Transfers in Aggregate Capital Accumulation /	Next

February 1980.

This paper is organized as follows: The first part of the paper introduces the topic. In the next part, we explore the inadequacies of conventional and equity-based variable annuities in an inflationary environment by contrasting them with a hypothetical PPA. We then try to assess the suitability of money market instruments hedged with commodity futures as the asset base for PPA's, and consider the possibility of having financial institutions offer them to the public. The major conclusion of the paper is that private pension plans could offer retiring employees a choice between a conventional money-fixed annuity or a PPA, both of which would cost theemployer the same amount of money to fund, although this option would require the PPA benefitlevel in the first few years of retirement to be lower than that of the conventional annuity.