TY  - JOUR
AU  - Chalmers,John
AU  - Reuter,Jonathan
TI  - How Do Retirees Value Life Annuities? Evidence from Public Employees
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15608
PY  - 2009
Y2  - December 2009
UR  - http://www.nber.org/papers/w15608
L1  - http://www.nber.org/papers/w15608.pdf
N1  - Author contact info:
John Chalmers
Charles H. Lundquist College of Business
University of Oregon
Eugene, OR  97403
E-Mail: jchalmer@lcbmail.uoregon.edu

Jonathan Reuter
Carroll School of Management
Boston College
224B Fulton Hall
140 Commonwealth Avenue
Chestnut Hill, MA 02467
Tel: 617/552-2863
Fax: 617/552-0431
E-Mail: reuterj@bc.edu
M3  - presented at "RRC", August 10-11, 2009
AB  - Economists have long been puzzled by the low demand for life annuities.  To shed new light on this puzzle, we study payout choices in the Oregon Public Employees Retirement System, where each retiree must choose between a lump sum and a life annuity.  Notably, the average life annuity we study is better than actuarially fair when compared to the lump sum and 85% of retirees choose the life annuity.  Whether and how retirees respond to variation in the value of life annuity payments depends crucially on the source of variation.  We find strong evidence that demand responds to variation in retiree characteristics.  In contrast, we find little evidence that demand responds to plausibly exogenous variation in annuity pricing, which is economically meaningful but less salient.  Finally, we find robust evidence that demand for the lump sum increases with recent equity market returns and other salient measures of investor sentiment.
ER  -