Joint life annuities and annuity demand by married couples

This article summarizes the range of joint-life annuity products that are c urrently available to married couples, and it explores the potential utilit y gain that such couples receive from access to actuarially fair annuity ma rkets. It is more difficult to estimate this utility gain for couples than for individuals because a couple's value of annuitization will depend in pa rt on the survivor benefits that are available after one spouse has died bu t while the other is still alive. Valuing joint and survivor annuities also requires recognition of the potentially important interactions between the members of a married couple, such as joint consumption, interdependent uti lities, and correlated mortality rates. This article considers each of thes e issues. It develops an annuity valuation model for married couples and it estimates their "annuity equivalent wealth," the amount of wealth that cou ples would need in the absence of actuarially fair annuity markets in order to achieve the same utility level that they receive when such markets are available. The utility gain from annuitization is smaller for couples than for single individuals. Since most potential annuity buyers are married, th is finding may help to explain the limited size of the market for single pr emium annuities in the United States.