Health Cost Risk and Optimal Retirement Provision: A Simple Rule for Annuity Demand

We analyze the effect of health cost risk on optimal annuity demand and consumption/savings decisions. Many retirees are exposed to sizeable out-of-pocket medical expenses, while annuities potentially impair the ability to get liquidity to cover these costs and smooth consumption. We find that if out-of-pocket medical expenses can already be sizeable early in retirement, full annuitization is not optimal. In the other case of low health cost risk early in retirement, individuals should take advantage of the mortality credit that annuities provide and save out of the annuity income to build a buffer for health cost shocks at later ages. When comparing to empirically observed levels of annuitization, we find that high health cost risk early in retirement may resolve the annuity puzzle. Moreover, we explain the observed pattern of annuitization as a function of initial wealth at retirement. For personal financial planning purposes, we develop a simple rule of thumb for annuity demand, based on expected health cost risk early in retirement, wealth at retirement, and minimum consumption levels. We show that the welfare costs from using the rule compared to the full life cycle model are small.Optimal life cycle portfolio choice;health cost risk;annuity;retirement

How Much Do Means-Tested Benefits Reduce the Demand for Annuities?

We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits. The availability of such means-tested payments creates an incentive to cash out (occupational) pension wealth for low and middle income earners, instead of taking the annuity. Agents trade-off the advantages from annuitization, receiving the wealth-enhancing mortality credit, to the disadvantages, giving up “free” wealth in the form of means-tested supplemental benefits. We find that the availability of means-tested benefits can reduce the desired annuitization levels substantially. Using individual level data, we show that the model’s predicted annuitization rates as a function of the level of pension wealth are roughly consistent with the cash-out patterns of occupational pension wealth observed in Switzerland.means-tested benefits, occupational pension, annuity, life-cycle model

Optimal Annuitization with Incomplete Annuity Markets and Background Risk During Retirement

We examine incomplete annuity menus and background risk as possible drivers of divergence from full annuitization. Contrary to what is often suggested in the literature, we find that full annuitization remains optimal if saving is possible after retirement. This holds irrespective of whether real or only nominal annuities are available. Whenever liquidity is desired, individuals save sizeable amounts out of their annuity income to smooth consumption shocks. Similarly, adding variable annuities to the menu does not increase welfare significantly, since individuals can save in order to get the desired equity exposure. We calculate bounds on a possible bequest motive and default risk of the annuity provider and find that for realistic parameters full annuitization remains optimal.Optimal life cycle portfolio choice;annuity;savings;retirement

How Much Do Means-Tested Benefits Reduce the Demand for Annuities?

We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits or income supplements. The availability of such meanstested payments creates an incentive to cash out (occupational) pension wealth for low and middle income earners, instead of taking the annuity. Agents trade-off the advantages from annuitization, receiving the wealth-enhancing mortality credit, to the disadvantages, giving up "free" wealth in the form of means-tested supplemental benefits. We show that the availability of means-tested benefits can reduce the desired annuitization levels substantially. Moreover, the model's predicted annuitization rates as a function of the level of pension wealth are roughly consistent with the cash-out patterns of occupational pension wealth observed in Switzerland.Means-Tested Benefits, Occupational Pension, Annuity.

Evidence of the indirect hormonal activity of prohormones using liver S9 metabolic bioactivation and an androgen bioassay

Prohormones such as dehydroepiandrosterone (DHEA) are steroid precursors that do not show hormonal activity by themselves. Abuse of these prohormones in cattle fattening is hard to prove because of strong in vivo metabolism and the difficulty to detect metabolites which are not significantly above endogenous levels. The aim of the present work was to develop an in vitro assay capable of detecting the indirect hormonal activity of prohormones that might be present in feed supplements and injection preparations. Sample extracts were incubated with a bovine liver S9 fraction in order to mimic the in vivo metabolic activation. Subsequently incubated extracts were exposed to a highly androgen-specific yeast bioassay to detect hormonal activity. Metabolic activation of DHEA, 4-androstene-3,17-dione (4-adione) and 5-androstene-3,17-diol (5-adiol) resulted in an increased androgenic activity caused by the formation of the active androgen 17ß-testosterone (17ß-T), as shown by ultra-performance liquid chromatography and time-of-flight mass spectrometry with accurate mass measurement. The developed in vitro system successfully mimics the hydroxysteroid dehydrogenase (HSD)- and cytochrome P450-mediated in vivo metabolic transitions, thus allowing assessment of both bioactivity and chemical identification without the use of animal experiments. Screening of unknown supplement samples claimed to contain DHEA resulted in successful bioactivation and positive screening results according to the androgen yeast biosenso