Keywords

annuity, pension, retirement income, framing

Abstract

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.

Original Publication Citation

“What Makes Annuitization More Appealing?” 2014. Journal of Public Economics 116 (August 2014): 2-16 (with John Beshears, James J. Choi, David Laibson and Stephen P. Zeldes). http://dx.doi.org/10.1016/j.jpubeco.2013.05.007

Document Type

Peer-Reviewed Article

Publication Date

2014

Publisher

Journal of Public Economics

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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