New Evidence on the Money’s Worth of Immediate and Deferred Individual Annuities

This paper estimates the expected present discounted value (EPDV) of the payments from immediate and deferred annuities that were available in the US retail insurance market in May 2024. The central estimates suggest that for immediate annuities purchased at age 65, the value of payouts per premium dollar is about 87 cents for a buyer whose prospective mortality aligns with that of the US population, and about one dollar for one whose mortality aligns with that of a typical annuity purchaser. For a deferred annuity purchased at age 65 that begins payouts at age 75, the EPDVs are 73 cents and close to one dollar, respectively. The private information that contributes to the lower mortality rates of annuitants than those of the population appears to decay over time, and age-specific mortality rates of recent annuitants are somewhat lower than those of annuitants who bought policies further in the past. Annuities with guarantee periods, the most popular retail products, are much less sensitive, from a valuation perspective, to the buyer’s date of death and mortality risk than simple life annuities.