The Impact of Health Status and Out-of-Pocket Medical Expenditures on Annuity Valuation

32 Pages Posted: 14 Feb 2008

See all articles by cassio turra

cassio turra

affiliation not provided to SSRN

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

Date Written: July 1, 2004

Abstract

This paper describes how differences in health status at retirement can influence the decision to purchase a life annuity. We extend previous research on annuitization decisions by incorporating the effect of health differentials via differences in survival throughout the latter portion of life. Next, we consider how precautionary savings motivated by uncertain out-of-pocket medical expenses influence annuitization decisions. Our results show that annuities become less attractive to people facing uncertain medical expenses. While full annuitization would still be optimal if annuity markets were truly complete and both life- and health-contingent, lacking this, annuity equivalent wealth values are much lower for those in poor health, as compared to persons in good health.

Suggested Citation

turra, cassio and Mitchell, Olivia S., The Impact of Health Status and Out-of-Pocket Medical Expenditures on Annuity Valuation (July 1, 2004). Michigan Retirement Research Center Research Paper No. WP 2004-086, Available at SSRN: https://ssrn.com/abstract=1092900 or http://dx.doi.org/10.2139/ssrn.1092900

Cassio Turra

affiliation not provided to SSRN

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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