Cognitive Constraints on Valuing Annuities

Jeffrey R. Brown, Arie Kapteyn, Erzo F.P. Luttmer, Olivia S. Mitchell

NBER Working Paper No. 19168
Issued in June 2013, Revised in October 2014

---- Acknowledgements ----

Previously circulated as "Decision Complexity as a Barrier to Annuitization". The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Financial Literacy Consortium. The authors also acknowledge support provided by the Pension Research Council/Boettner Center at the Wharton School of the University of Pennsylvania, and the RAND Corporation. The authors thank Jonathan Li, Caroline Tassot and Yong Yu for superb research assistance, and Tim Colvin, Tania Gutsche, Bas Weerman, and participants of the Netspar 2012 Paris conference and the NBER PE program meetings for their invaluable comments and assistance on the project. Brown is a Trustee of TIAA and has served as a speaker, author, or consultant for a number of financial services organizations, some of which sell annuities and other retirement income products. Mitchell is a Trustee of the Wells Fargo Advantage Funds and has received research support from TIAA-CREF. The opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the Federal Government, any other institution with which the authors are affiliated, or the National Bureau of Economic Research.

---- Disclosure of Financial Relationships for 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.

---- Disclosure of Financial Relationships for Arie Kapteyn ----

This research was funded by the National Institute on Aging under grant 5P01AG008291

---- Disclosure of Financial Relationships for Olivia S. Mitchell ----

Mitchell serves as a Trustee for the Wells Fargo Advantage Funds and has received more than $10,000 from the TIAA-CREF Institute and RAND for research studies on retirement security.

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