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Annuities

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Retirees who use their savings to selfinsure their consumption after retirement face two major risks: If they consume at too rapid a rate, they may spend their last years in extreme poverty. If they consume too slowly, they may leave sizeable assets behind when they die. But if annuities are available, retirees can avoid both risks completely. At the same time, they can maximize their annual consumption because annuity returns exceed returns on safe assets by a mortality premium, which is always positive.


Suggested citation: "Annuities," Federal Reserve Bank of Cleveland, Economic Trends, no. 00-10, pp. 15, 10.01.2000.

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