Abstract
This chapter discusses the economic rationale for defined benefit (DB) pension plans, such as government social security programs and corporate retirement plans, which are schemes that implicitly provide longevity insurance by pooling participants. The chapter begins by contrasting such collective plans with do-it-yourself programs and then goes on to discuss the underlying concept of pensionization in greater detail, including the implicit wealth depletion time (WDT). The optimal amount of pension annuity income is linked to the WDT and illustrated with a detailed case study. The chapter concludes by presenting a simple metric for measuring the utility-based benefits of annuitization.
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Milevsky, M.A. (2020). Pensionization: From Benefits to Utility. In: Retirement Income Recipes in R. Use R!. Springer, Cham. https://doi.org/10.1007/978-3-030-51434-1_12
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DOI: https://doi.org/10.1007/978-3-030-51434-1_12
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