The Market Value of Optimal Annuitization and Bequest Motives

Since the seminal contribution of Yaari (1965), who showed that individuals with no bequest motive should convert all their retirement wealth into annuities, a number of papers have analysed the annuitization decision under the so-called all or nothing institutional arrangement, where immediate lifetime annuities are purchased just at a one point in time. In this paper, we investigate the effect of linear bequest motives on the annuitization decision for a retired individual who maximizes the market value of future cash flows. Finally, we present numerical examples analyzing optimal annuitization under strong or weak bequest motives.