Longevity Risk and Retirement Savings

Over the last couple of decades there have been unprecedent, and to some extent unexpected, increases in life expectancy which have raised important questions for retirement savings. We study optimal consumption and saving choices in a life-cycle model, in which we allow for changes in the distribution of survival probabilities, according to the Lee-Carter model. We allow individuals to hedge longevity risk through an endogenous retirement decision and by investing in financial assets desgined to hedge this risk.