City Research Online

Abstract

In this paper we consider the choice that retirees might make between drawing down from their pension pot and the purchase of an annuity. A key finding of our research that in a world of ‘loss aversion’, across a very wide range of assumptions, there is almost always a ‘crossover point’ during retirement at which moving out of drawdown into an annuity can be the optimal strategy. This suggests that the pensions industry should investigate the construction of a hybrid, ‘flex-first, fix-later’ pension product. We show that a ‘hybrid’ approach can produce much higher levels of happiness, especially at older ages, than staying wholly in drawdown or from buying an annuity at the point of retirement.

Publication Type:	Article
Publisher Keywords:	Sequence Risk; Longevity Risk, Withdrawal Risk, Delayed Annuities, Adaptive Withdrawals, Residual Sum
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HN Social history and conditions. Social problems. Social reform
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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