The 1997 grant produced the paper "Joint Life Annuities and Annuity Demand by Married Couples", which Professor Poterba co-authored with Jeffrey Brown of the Kennedy School of Government at Harvard University. The summarizes the range of annuity products currently available to couples.
In 1995, 77 percent of men and 43 percent of women over age 65 were married, thus married couples figure prominently in the age group most likely to buy annuities. The research paper builds on prior research analyzing the annuity purchase habits of married individuals. The authors consider the impact of sharing assets throughout the two lives of the couple, and thus focuses on joint life as opposed to single life annuities. The joint life annuity gives married couples more survivor payment options. The authors found that even given these realities, married couples place less value on joint-life annuities than single individuals place on single life annuities. However, the value of annuitization rises with risk aversion and with the age of the couple. The authors' research reveals some causes of this lack of demand. One factor is that many couples already have an annuity in place either from other assets or hold assets that have annuity characteristics, e.g., income from defined benefit pension plans and Social Security. In addition, risk sharing between couples explains part of the difference in annuity valuation between married couples and individuals. Nonetheless, a couple consisting of a 65 year old man and a 62 year old woman would find access to actuarially fair annuities results in approximately a one-fifth increase in non-annuitized wealth, assuming log utility.
The paper has been published in The Journal of Risk and Insurance, Volume 67, Number 4, December 2000.
