Working Paper: NBER ID: w0896
Authors: Zvi Bodie; James E. Pesando
Abstract: This paper examines the tilt and risk-return characteristics of real retirement incomes provided by variable annuities tied to bills, long-term bonds, stocks and a mixed portfolio which combines all three. The analysis emphasizes the riskiness of the real value of benefits provided by conventional nominal annuities. The Rockefeller Foundation Plan, together with the "ad hoc" cost-of-living adjustments made by many large firms, are interpreted as representative market responses to increased inflation uncertainty. The paper examines the annuity designs implicit in these innovations, and shows them to be variants of the standard variable annuity.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Variable Annuities (VAs) tied to short-term treasury bills (G12) | More stable real income streams (G59) |
| Variable Annuities with nominal floors and real ceilings (VAFCs) (G19) | More stability in real benefit payments (H55) |
| Nominal level-payment annuities (G19) | Substantial uncertainty regarding the real value of benefits due to inflation (E31) |
| Introduction of nominal floors in annuities (G19) | More stable benefit stream (D15) |