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Automatic enrollment in 401(k) annuities: Boosting retiree lifetime income

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Editor's Note:

This report was produced in concert with the event, “Retirement Policy and Annuitization: A View from the Experts,” held at Northwestern University’s Kellogg School of Management on May 9, 2019 and co-sponsored by Brookings and the Kellogg Public-Private Initiative. The other reports from the event discuss how to increase demand for annuities and using behavioral insights to increase annuitization rates.


Very few defined contribution retirement plans in the U.S. today pay out lifetime income streams, leaving retirees at risk to run out of money in old age. Our proposal is to include deferred lifetime income annuities (DIAs) as a default in employer-provided 401(k) plans. We investigate the pros and cons of such a proposal using a life cycle economic model which takes into account the value of having true longevity protection in one’s retirement account. Specifically, we report results from a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations relevant to the American workforce. We show that automatically enrolling retirees using only a small portion of their 401(k) assets can substantively enhance retirement security and improve welfare.

Vanya Horneff

Post-Doc - Investment and Pension Finance, Finance Department, Goethe University, Frankfurt

Researcher - Institute for Sustainable Architecture for Finance in Europe (SAFE)

Raimond Maurer

Professor of Investment, Portfolio Management and Pension Finance - Finance Department, Goethe University, Frankfurt

Research Associate - Sustainable Architecture for Finance in Europe (SAFE)

Advisory Committee Member - Pension Research Council, Wharton School, University of Pennsylvania

Olivia S. Mitchell

International Foundation of Employee Benefit Plans Professor - The Wharton School at the University of Pennsylvania

Olivia Mitchell is an Independent Trustee of the TIAA Institute at Wells Fargo and Director of the Pension Research Council of the Wharton School at the University of Pennsylvania.

The authors did not receive any financial support from any firm or person for this article or from any firm or person any views or positions expressed or advocated in this article. They are currently not an officer, director, or board member of any organization that has compensated or otherwise influenced them to write this article or to express or advocate any views or positions in this article. Accordingly, the views and positions expressed in this article are solely those of the authors and should not be attributed to any other person or organization.

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