The Benefits of Pooling

Explains the essence of longevity risk pooling by setting up a canonical example of a retiree who desires to finance a fixed consumption stream for life. As the size of the pool grows, the chapter demonstrates how the present value cost of retirement is reduced. The chapter then moves on to discuss alternative measures, such as utility theory, for gauging the value of longevity risk pooling and alludes to the concerns with mixed pools in which longevity is heterogenous. Introduces the transfer of wealth from poor-to-rich when longevity is correlated with wealth in a basic pension system. It concludes by offering sources for additional reading and references.