Morbidity-Based Pension Benefit Evaluation and Payment Option Comparison

In this paper, the authors survey and summarize the widely researched morbidities and their life expectancy results. A constant impaired mortality adjustment for each morbidity is defined so that life expectancy is consistent with current medical research. Impaired mortality factors are derived and used to evaluate morbidity’s impact on retirement benefits. A morbidity-based pension benefit evaluation algorithm is proposed. Popular pension payment options, such as single life payment and joint life, are evaluated. The authors found that the optimal decision is highly sensitive to health status: lump sums are preferred when health is impaired, whereas annuities dominate for healthier individuals.