If people behave rationally, why do they invest so little money in annuities? What are the reasons that people consume most when they are approximately 50 years old? In existing models the optimal behaviour is complete annuitisation and a peak of consumption very late in life.
The continuous life-cycle models proposed in the present thesis differ from the existing ones in that either annuities generate lower return than the actuarially fair rate, or the utility of bequest depends on the number of dependent family members. Each of these features leads to an age-dependent portfolio of investments in bonds and annuities. In addition, it is numerically shown that the risk aversion towards death leads to a consumption profile which is qualitatively consistent with the real data. In all considerations the rent of capital stock and the wages are endogenously determined by the rational expectation framework, in contrast to most of the existing studies, where both are exogenous.