Uncategorized

Should the government get into the insurance biz?

close

Email a Friend

Should the government get into the insurance biz?

Well, Professor Terrance Odean, Professor of Finance at UC Berkley, thinks so.

From an Op-Ed in the NYT:

Anyone planning for retirement must answer an impossible question: How long will I live? If you overestimate your longevity, you might scrimp unnecessarily. If you underestimate, you might outlive your savings.

This is hardly a new problem — and yet not a single financial product offers a satisfactory solution to this risk.

We believe that a new product — a federally issued, inflation-adjusted annuity — would make it possible for people to deal with this problem, with the bonus of contributing to the public coffers. By doing good for individuals, the federal government could actually do well for itself.

Prof. Odean thinks the government could actually play the role of Ultimate Backstop.  Annuity buyers pay a premium to an insurance company in return for a “guaranteed” payment stream.  Of course, nothing is guaranteed and investors are subject to default by underwriting insurers.

The U.S. government doesn’t face the same default risk (though theoretically does face some risk).  Here’s how it would work:

  1. investors would enroll in a qualified retirement plan (like a 401k) and choose an annuity option
  2. investors would receive payouts based on a variety of factors like mortality tables and interest rates

Proponents of this product (hey, roll-em up and issue an ETF that tracks them) believe that the Treasury would even benefit from such a plan as it decreases reliance on foreign lenders and expands the domestic investor base.  While I don’t particularly like government meddling, it’s an interesting idea.

Prof Odean is a Tradestreaming favorite and his works have been incorporated into much of my book.  He’s done great, insightful work on investor overconfidence-caused underperformance, overtrading (which is also caused in part by overconfidence), expenses and mutual fund flows.

Source

Paying for Old Age (New York Times) Feb 25, 2011

0 comments on “Should the government get into the insurance biz?”

Events, Uncategorized

New speakers announced for Tearsheet’s Resilience Conference

  • The Resilience Conference will celebrate the people, teams and companies successfully navigating through this crisis.
  • 3 new speakers have just been announced.
Tearsheet Editors | June 25, 2020
The Customer Effect, Uncategorized

Inside Yielders, the UK’s first regulatory compliant Islamic crowdfunding platform

  • Yielders, an equity-based crowdfunding platform for real estate, is the first Shariah-compliant financial technology company to get regulatory approval in the U.K.
  • The platform's user base is 35 percent non-Muslim, some of whom may be attracted to the ethical investing principles.
Suman Bhattacharyya | May 18, 2017
Sponsored, Uncategorized

FinTech is changing your life, and you don’t even know it

Brandeis University | May 01, 2017
Uncategorized

FinTech Week: By the numbers

  • Empire Startups' inaugural FinTech Week begins today in New York
  • In preparation for 25 forthcoming events over four days, here's a breakdown by the numbers.
Tanaya Macheel | April 24, 2017
Uncategorized

Hi 5! The top five fintech stories we’re following today

  • Retailers may be looking into the future as opposed to implementing for today.
  • Banks are working to get more people comfortable using mobile apps.
Zack Miller | February 06, 2017
More Articles