What Makes Annuitization More Appealing?
NBER Working Paper No. 18575
Issued in November 2012, Revised in June 2013
NBER Program(s):The Program on Aging
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.
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.
Supplementary materials for this paper:
Acknowledgments and Disclosures
Machine-readable bibliographic record -
Document Object Identifier (DOI): 10.3386/w18575
- What Makes Annuitization More Appealing?, John Beshears, James Choi, David Laibson, Brigitte C. Madrian, Stephen P. Zeldes. in Retirement Benefits for State and Local Employees: Designing Pension Plans for the Twenty-First Century, Clark, Rauh, and Duggan. 2014
- Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C. & Zeldes, Stephen P., 2014. "What makes annuitization more appealing?," Journal of Public Economics, Elsevier, vol. 116(C), pages 2-16. citation courtesy of
Users who downloaded this paper also downloaded* these:
|Chetty, Friedman, Leth-Petersen, Nielsen, and Olsen
||w18565 Active vs. Passive Decisions and Crowdout in Retirement Savings Accounts: Evidence from Denmark
|Brown, Kling, Mullainathan, and Wrobel
||w13748 Why Don't People Insure Late Life Consumption: A Framing Explanation of the Under-Annuitization Puzzle
||w13537 Rational and Behavioral Perspectives on the Role of Annuities in Retirement Planning
|Beshears, Choi, Laibson, and Madrian
||w19193 Who Uses the Roth 401(k), and How Do They Use It?
|Brown, Kapteyn, Luttmer, and Mitchell
||w19168 Cognitive Constraints on Valuing Annuities