Framing Lifetime Income

Jeffrey R. Brown; Jeffrey R. Kling; Sendhil Mullainathan; Marian V. Wrobel

doi:10.3386/w19063

Framing Lifetime Income

Jeffrey R. Brown, Jeffrey R. Kling, Sendhil Mullainathan & Marian V. Wrobel

Working Paper 19063

DOI 10.3386/w19063

Issue Date May 2013

We provide evidence that individuals optimize imperfectly when making annuity decisions, and this result is not driven by loss aversion. Life annuities are more attractive when presented in a consumption frame than in an investment frame. Highlighting the purchase price in the consumption frame does not alter this result. The level of habitual spending has little interaction with preferences for annuities in the consumption frame. In an investment frame, consumers prefer annuities with principal guarantees; this result is similar for guarantee amounts below, at, and above the purchase price. We discuss implications for the retirement services industry and its regulators.

We thank Abby Sussman for exceptional research assistance. An earlier draft of this paper, co-authored with Garth Wiens, was circulated under the title "Framing, Reference Points, and Preferences for Life Annuities." We are grateful to the Pew Charitable Trusts, MacArthur Foundation, the Mott Foundation, and the TIAA-CREF Research Institute for financial support. Financial disclosure: Jeffrey R. Brown serves as a Trustee for TIAA and has received compensation as a speaker from companies that sell retirement income products. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research, the Congressional Budget Office, any of the other organizations with whom the authors are affiliated, or any of the organizations that funded this research.

Jeffrey R. Brown
I have served since 2009 as a Trustee for TIAA, a company that sells pensions, annuities and other retirement income products. In addition, I have received compensation totaling more than $10,000 from several financial institutions, including life insurance companies, for making presentations about retirement income security. Further, I have received more than $10,000 in compensation from the American Council of Life Insurers for speaking and writing white papers on topics related to retirement income security.
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Jeffrey R. Brown, Jeffrey R. Kling, Sendhil Mullainathan, and Marian V. Wrobel, "Framing Lifetime Income," NBER Working Paper 19063 (2013), https://doi.org/10.3386/w19063.

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