The Impact of Longevity Annuity Provision on Retirement Income Planning for Canadians—A Modified General Endogenous Grid Method

Abstract

This article examines the impact of longevity annuities on retirement income planning for Canadians across various socioeconomic classes, considering realistic tax rules, retirement systems, and the uncertainty of future mortality improvement. We employ a dynamic life cycle framework to analyze changes in saving and consumption patterns resulting from longevity annuities. A modified general endogenous grid method (G2EGM) is proposed to efficiently determine saving and consumption decisions while addressing non-differentiability issues arising from realistic government regulations. Additionally, we investigate factors influencing longevity annuity demand, including annuity price, risk attitude, mortality assumptions, and information asymmetry. Our methodological advancements and empirical findings provide valuable insights into the role of longevity annuities in retirement planning across diverse socioeconomic backgrounds in Canada.