Joint life annuities and annuity demand by married couples

This article summarizes the range of joint-life annuity products that are currently available to married couples, and it explores the potential utility gain that such couples receive from access to actuarially fair annuity markets. It is more difficult to estimate this utility gain for couples than for individuals because a couple's value of annuitization will depend in part on the survivor benefits that are available after one spouse has died but 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 utilities, and correlated mortality rates. This article considers each of these issues. It develops an annuity valuation model for married couples and it estimates their "annuity equivalent wealth," the amount of wealth that couples 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, this finding may help to explain the limited size of the market for single premium annuities in the United States.