Substantial shifts in wealth ownership from individuals to pension funds are currently taking place in the United States and also are in prospect for the foreseeable future. Moreover, pension funds typically exhibit portfolio preferences that are markedly different from those of individuals. In a world of heterogeneous investors, redistributions among wealth holders with different portfolio preferences will in general alter the structure of asset yields. Partial-equilibrium simulation experiments based on a model of the U. S. long-term bond market indicate that redistributions of saving flows from individuals to pension funds, in plausible magnitudes, can have major effects on the term structure of interest rates. In a world in which wealth holders ' risk aversion renders different assets less than perfect substitutes, the interaction between investors' portfolio preferences and existing asset supplies determines the structure of asset yields. Using a model in which the only explicitly traded assets are money and bonds, for example, Patinkin [19651 showed explicitly how either a shift in the exogenously determined

The fact that most eldealy individuals in the United States choose to maintain a flat age-wealth profile, rather than buy individual life annuities, stands in contrast to central implications of the standard life-cycle model of consumption-saving behavior. The analysis in this paper lends support to an explanation for this phenomenon based either on the cost of annuities, importantly including the element of that cost due to adverse selection, or on the interaction of that cost and an intentional bequest motive. Expected yields offered on individual life annuities in the United States are lower by some 4-6%, or 2 1/2-4 1/2% after allowing for adverse selection, than yields on alternative long-term fixed-income investments. Simulations of an extended model of life-cycle saving and portfolio behavior, allowing explicitly for uncertain lifetimes and Social Security, show that yield differentials in this range can account for the observed behavior, even in the absence of a bequest motive, during the early years of retirement. By contrast, at older ages the combination of yield differentials in this range and a positive bequest motive is necessary to do so.