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Recalibrating Retirement Spending and Saving$
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John Ameriks and Olivia S. Mitchell

Print publication date: 2008

Print ISBN-13: 9780199549108

Published to Oxford Scholarship Online: January 2009

DOI: 10.1093/acprof:oso/9780199549108.001.0001

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Asset Allocation within Variable Annuities: The Impact of Guarantees

Asset Allocation within Variable Annuities: The Impact of Guarantees

(p.276) Chapter 12 Asset Allocation within Variable Annuities: The Impact of Guarantees
Recalibrating Retirement Spending and Saving

Moshe A. Milevsky

Vladyslav Kyrychenko

Oxford University Press

The latest generation of variable annuity contracts contains equity options plus longevity insurance, sometimes thought to be attractive to purchasers willing to take on financial risk. This chapter examines whether this is indeed the case. Using a unique database, it documents that policyholders do in fact adopt higher equity exposures when these riders are selected. It also examines the theoretical merits of the marketing advice, by deriving the optimal asset allocation in the presence of these guarantees. The chapter concludes that more aggressive equity allocations can indeed be justified in many, although not all, product structures.

Keywords:   variable annuity, insurance, retirement portfolio, living benefit rider, guaranteed living benefit, longevity insurance, equity exposures

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