This article investigates why individuals save to finance consumption during retirement, and we focus this investigation on the inefficiency of constant annuities. To thoroughly examine this problem, we first derive the demand function for the annuities in the case where the capital market is imperfect and the annuities are constrained to be constant throughout the retirement period. With these constraints, we then show that the individual holds assets not only in the form of actuarial notes but also in the form of monetary wealth.
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Yagi et al. (1993) studied this question.
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