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Living longer in high longevity risk

Published online by Cambridge University Press:  07 February 2020

Rachel Wingenbach ,
Jong-Min Kim  and
Hojin Jung Open the ORCID record for Hojin Jung [Opens in a new window]
Rachel Wingenbach
Affiliation:
Statistics Discipline, Division of Science and Mathematics, University of Minnesota-Morris, Morris, MN56267, USA
Jong-Min Kim
Affiliation:
Statistics Discipline, Division of Science and Mathematics, University of Minnesota-Morris, Morris, MN56267, USA
Hojin Jung*
Affiliation:
Department of Economics, Jeonbuk National University, Jeonju-si, Jeollabuk-do54896, Korea
*
*Corresponding author. E-mail: hojin.jung@jbnu.ac.kr
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Abstract

There is considerable uncertainty regarding changes in future mortality rates. This article investigates the impact of such longevity risk on discounted government annuity benefits for retirees. It is critical to forecast more accurate future mortality rates to improve our estimation of an expected annuity payout. Thus, we utilize the Lee–Carter model, which is well-known as a parsimonious dynamic mortality model. We find strong evidence that female retirees are likely to receive more public lifetime annuity than males in the USA, which is associated with systematic mortality rate differences between genders. A cross-country comparison presents that the current public annuity system would not fully cover retiree's longevity risk. Every additional year of life expectancy leaves future retirees exposed to high risk, arising from high volatility of lifetime annuities. Also, because the growth in life expectancy is higher than the growth of expected public pension, there will be a financial risk to retirees.

Keywords

Lee–Carter modellongevity riskmortality rate

JEL classification

J18: Public Policy J11: Demographic Trends, Macroeconomic Effects, and Forecasts
Type
Research Papers
Information
Journal of Demographic Economics , Volume 86 , Issue 1 , March 2020 , pp. 47 - 86
Copyright
Copyright © Université catholique de Louvain 2020

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