10 - Longevity Insurance Revisited
from II - WEALTH MANAGEMENT: APPLICATIONS AND IMPLICATIONS
Published online by Cambridge University Press: 06 July 2010
Summary
To Annuitize or Not To Annuitize?
The pension plan at my university will present me with a very difficult choice when I reach retirement. At that time I must decide whether I want to receive my benefits in the form of an immediate pension annuity (which the university will provide for the rest of my life) or to take the money out in one lump sum and assume the responsibility for retirement income myself. This is an all-or-nothing decision. I can't leave part of the money in, nor can I reverse my decision after I retire. If I take the pension annuity, I will never be able to access the funds, and if I withdraw the money, I can never rejoin the university pension plan and convert the balance into a pension annuity. So if I take the lump-sum payout but then later want an annuity, my only option will be to go to an established insurance company and purchase a (retail) pension annuity directly. In this case, the price I must pay for the lifetime income will depend on the insurance company and their pricing assumptions, but it will certainly provide me with less income than what I could have received from my university pension plan because of the difference between group pricing and individual pricing. Thus, if I truly want to receive my benefits in the form of a pension annuity, I'm much better off doing this via my university pension plan.
- Type
- Chapter
- Information
- The Calculus of Retirement IncomeFinancial Models for Pension Annuities and Life Insurance, pp. 215 - 246Publisher: Cambridge University PressPrint publication year: 2006