Mortality Heterogeneity and The Distributional Consequences of Mandatory Annuitization

Using data from the Health and Retirement Study (HRS), we calculate the relationship between socio-economic status and a utility based measure of annuity value. We find considerable variation between groups once we take account of not only socio-economic differences in mortality, but also pre-annuitized wealth and longevity risk pooling in marriage. Using HRS data on subjective survival probabilities, we then construct a subjective life table for each individual in the HRS. We show that these tables vary appropriately between groups and aggregate closely to group level averages. We calculate the value each household would place on annuitization, based on the husband and wife's subjective life tables, and the household's degree of risk-aversion and proportion of pre-annuitized wealth. A significant minority would perceive themselves as suffering a net loss from mandatory annuitization.