NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What Makes Annuitization More Appealing?

John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Stephen P. Zeldes

NBER Working Paper No. 18575
Issued in November 2012
NBER Program(s):   AG

We conduct and analyze two large surveys of hypothetical annuitization choices. We find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an “all or nothing” decision. Very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value. Highlighting the effects of inflation increases demand for cost of living adjustments. Frames that highlight flexibility, control, and investment significantly reduce annuitization. A majority of respondents prefer to receive an extra “bonus” payment during one month of the year that is funded by slightly lower payments in the remaining months. Concerns about later-life income, spending flexibility, and counterparty risk are the most important self-reported motives that influence the annuitization decision.

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A non-technical summary of this paper is available in the 2013 number 1 issue of the NBER Bulletin on Aging and Health. You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (589 K) or via email.

An online appendix is available for this publication.

This paper was revised on June 5, 2013

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Document Object Identifier (DOI): 10.3386/w18575

Forthcoming: What Makes Annuitization More Appealing?, John Beshears, James Choi, David Laibson, Brigitte Madrian, Stephen P. Zeldes. in Retirement Benefits for State and Local Employees: Designing Pension Plans for the Twenty-First Century, Clark and Rauh. 2014

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