Balancing Annuities and Tontines: A Study of Temporal Risk Aversion in Retirement Planning

This article investigates individual demand for retirement income products in a setting where both traditional life annuities and innovative instruments such as tontines—for which the payouts depend on realized survival probabilities—are available. We model individual preferences using a generalized life-cycle utility framework that explicitly incorporates temporal risk aversion, reflecting aversion to uncertainty over the timing of death rather than merely consumption risk. Within this framework, we derive conditions under which individuals with temporal risk aversion prefer a retirement income strategy that combines partial tontinization with partial annuitization, rather than full annuitization.