Optimal Annuitization with High Inflation

We develop a dynamic optimal annuitization model incorporating high inflation rates, where an individual determines the optimal time to annuitize. The individual has the right (but not the obligation) to annuitize by entering retirement at some future time of her choosing. We demonstrate that the annuitization decision depends on levels of wealth, which is influenced by the state variable controlling for inflation. The annuitization wealth threshold changes over values of fundamental parameters (e.g., investment opportunity, risk aversion inflation). We find that when annuitization timing is flexible, the individual tends to extend her working life in response to high inflation rates so that adverse market conditions can be absorbed by delaying annuitization with high wealth thresholds for annuitization.