The transient’s key findings are:

  • Whereas annuities provide retirees a dependable stream of lifetime earnings, few folks buy them.
  • To probe folks’s perceptions of annuities, a brand new survey queried these close to or in retirement with over $100,000 in monetary property.
  • About half of respondents say they’d be prepared to purchase an annuity at prevailing market charges, whereas simply 12 % truly achieve this.
  • The research examined whether or not low annuity take-up may very well be defined by a scarcity of liquidity or the shortcoming to make bequests, however discovered no such proof.
  • Briefly, folks could also be deterred not by a scarcity of curiosity in annuities however by a lack of information of the product and easy methods to purchase it.


Though many financial fashions predict excessive annuitization charges, solely a small portion of retirees maintain an annuity.  This discrepancy is called the “annuity puzzle.”  Many explanations have been superior for this puzzle, all of them selling explanation why people may not need to annuitize.

This transient, which is predicated on a latest paper, analyzes a brand new survey of people close to or in retirement with over $100,000 of investable property.  The findings recommend that roughly half of this inhabitants wish to purchase an annuity at prevailing market costs – considerably greater than the 12 % that truly achieve this.  Additional, they recommend that probably aversive qualities of annuities, resembling the truth that they can’t be bequeathed or that they tie up wealth in an illiquid kind, have a negligible impression on the respondents’ willingness to annuitize.

The remainder of the transient is structured as follows.  The primary part briefly discusses the background of the annuity puzzle.  The second part describes the survey.  The third part presents the outcomes.  The ultimate part concludes that many extra people are prepared to purchase annuities than truly purchase them, suggesting that logistical impediments stymie extra widespread annuitization.


The annuity puzzle is a longstanding query.  Since 1965, economists have argued that many people ought to annuitize not less than a few of their wealth in retirement.  Nevertheless, within the biennial Well being and Retirement Examine (HRS), a nationally consultant survey of Individuals over age 50 carried out by the College of Michigan, solely 12 % of households with monetary property over $100,000 obtain any annuity earnings. 

Current Explanations for Annuity Puzzle

Researchers have provided many potential rationales for the annuity puzzle.  A number one clarification is that annuities are too costly.  One motive for top prices is antagonistic choice – that longer-lived people usually tend to purchase annuities within the first place, main suppliers to boost costs.  Insurance coverage corporations even have administrative prices and search to make earnings.  A second clarification for the annuity puzzle is that individuals might wish to bequeath their property – making annuities with out survivor advantages unattractive.  A 3rd clarification is that individuals might fear about annuities being illiquid, thus making people unable to pay for giant surprising bills, resembling expensive nursing dwelling stays. 

A latest assessment of the literature additionally documented just a few different outstanding explanations for the annuity puzzle.  What all the reasons have in frequent is that they recommend explanation why people may not need to annuitize, for “good” causes (e.g., as a result of Social Safety offers enough lifetime earnings) or for “dangerous” causes (resembling people mistakenly believing they’re unlikely to dwell very lengthy).

Monetary Literacy and Channel Elements

Trying past why people may not need to annuitize, different components might result in low annuitization charges even when people could be inclined to purchase an annuity if provided one.  For instance, some people may not know that annuities exist, or they may not perceive them.  Additional, even when people are serious about annuities, they may not know easy methods to purchase them.

Particularly, social psychology has lengthy acknowledged “channel components:” seemingly small traits of a state of affairs that may have far-reaching penalties for the flexibility of people to comply with by way of on their intentions.  For instance, a basic experiment discovered that giving college students data on the significance of tetanus vaccines produced the intention to be inoculated.  Nevertheless, solely a bunch of scholars who got concrete plans for receiving the shot ended up getting vaccinated.  This consequence, replicated many occasions since, led to the conclusion that intentions are inadequate to provide motion on their very own, however relatively require particular step-by-step plans.  

Within the context of annuities, this discovering implies that wanting to purchase an annuity is meaningfully faraway from truly shopping for one.  The outcomes of the brand new survey and its randomized management trial described subsequent are in keeping with this social psychology instinct.

Survey and Randomized Management Trial

The survey, carried out by Greenwald Analysis in June of 2023, questioned 1,216 people.  Contributors have been ages 55-95 and had over $100,000 in financial savings, excluding actual property, outlined profit pension plans, and the worth of any enterprise.  Amongst different issues, the survey probed respondents’ demographic and financial traits, their sentiments concerning annuities, and their longevity expectations.

The core of the evaluation depends on a randomized management trial (RCT) with a management group and two therapy teams.  Within the management group, the trial elicited every client’s minimal annual lifetime annuity cost at which they’d purchase an annuity for a $100,000 premium.  In Therapy Group 1, shoppers have been provided the identical annuity as within the management group however, on this case, the annuity had an added early dying bequest characteristic: if the payouts by the point of dying had not exhausted the premium, the stability could be paid out to the decedent’s heirs.  In Therapy Group 2, shoppers have been provided the identical annuity as within the management group however, on this case, the annuity had an added liquidity characteristic: the place annuity holders might break the contract and withdraw the remaining premium.


The survey consists of each direct questions on how respondents really feel in the direction of assured lifetime earnings generally, in addition to an RCT designed to elicit valuations of ordinary fast annuities, on the one hand, and the 2 variations of annuities, on the opposite.  This part presents the three units of outcomes.

Direct Questions on Assured Lifetime Earnings Sentiments

The survey asks respondents instantly how they really feel about annuities.  Determine 1 exhibits that 76 % say it’s not less than considerably invaluable.

Additional, of those that don’t presently personal an annuity, most say they’re not less than considerably serious about proudly owning one (see Determine 2).

Bar graph showing the Share of Respondents Interested in Owning a Financial Product That Guarantees a Certain Amount of Income for Life

Respondents additionally usually agree that assured lifetime earnings would offer emotional and insurance coverage advantages (see Desk 1).

Table showing respondents' opinions on the benefits of guaranteed income products

Direct questions on annuities within the summary, nonetheless, can not decide why those that don’t worth annuities really feel that method.  Particularly, respondents might imagine annuities are good however not price their value, one of many important explanations of the annuity puzzle.  Or, they might like the concept of an annuity however really feel its advantages are outweighed by its prices by way of foregone bequests or liquidity.  The RCT part of the survey explores these points additional.

Speedy Annuity Valuations

The RCT elicited from every respondent how a lot assured month-to-month earnings they’d require so as to be prepared to pay a $100,000 premium.  Roughly half of respondents’ required funds have been decrease than the funds they may have gotten from annuities offered in the marketplace to clients with their very own age and gender on the time the survey was fielded.  Figures 3a and 3b present this consequence by age group, for women and men respectively.

Bar graph showing the Share of Respondents Who Report a Minimum Annual Payment to Buy an Annuity Below the Market Rate for a $100,000 Premium, by Age for Men
Bar graph showing the Share of Respondents Who Report a Minimum Annual Payment to Buy an Annuity Below the Market Rate for a $100,000 Premium, by Age for Women

The 50-percent share of respondents prepared to purchase annuities at prevailing market charges far exceeds the share of respondents who even have an annuity (13.5 %) or the share of comparable people in bigger surveys with over $100,000 in monetary property (12 %).  Thus, the outcomes recommend that a big swath of the inhabitants with property enough to purchase an annuity additionally need to purchase an annuity, but don’t comply with by way of on that want.  This discovering contrasts with all the reasons of the annuity puzzle that depend on rationales for why people don’t need to annuitize.  As an alternative, the outcomes recommend that some logistical obstacle resembling channel components is stopping extra widespread annuitization, relatively than the aversive high quality of annuities themselves.

Distinction in Valuations for Totally different Annuity Sorts

The outcomes of the RCT concerning various kinds of fast annuities additionally help the notion that it isn’t aversion to annuities per se suppressing demand for the product.  Somewhat, the evaluation finds no proof that respondents are prepared to pay extra for dying advantages or liquidity choices past what they’re prepared to pay for the standard fast annuity.

Determine 4 exhibits regression coefficients for the way far more annual earnings people require to pay a $100,000 premium for an annuity with dying advantages or a liquidity possibility, in comparison with the usual fast annuity.

Bar graph showing the Differences in Respondents’ Required Annual Annuity Payment for a $100,000 Premium, by Annuity Type

Neither of those coefficients is statistically totally different from zero.  In different phrases, regardless of the notion that the shortage of skill to bequeath an annuity and its illiquidity are main explanation why people don’t wish to annuitize, the RCT finds that merchandise enjoyable these constraints could be no extra enticing to shoppers than the usual annuity (which many truly like as is).


Annuity demand has persistently fallen far wanting what financial concept predicts, a discrepancy referred to as the “annuity puzzle.”  This transient reviews on findings from a latest research of demand for annuities based mostly on a survey of older people with over $100,000 in investable property.  The research elicited respondents’ willingness to purchase an annuity, and used an RCT to check whether or not shoppers would discover annuities with dying advantages or larger liquidity extra enticing.

The research discovered that roughly half of respondents could be prepared to purchase an annuity at prevailing market charges, a far larger share than those that truly do purchase annuities.  The truth that so many respondents needed annuities at these costs means that explanations counting on explanation why shoppers may not need to annuitize at market costs can not seize the entire story.  Respondents additionally didn’t seem extra prepared to purchase annuities that deal with their most outstanding aversive qualities – that they can’t be bequeathed and that they’re illiquid.

General, the findings recommend {that a} lack of want to purchase annuities just isn’t the rationale why roughly 40 % of people with over $100,000 in monetary property don’t annuitize (the 50 % who wish to annuitize minus the 12 % who achieve this).  Somewhat, the findings are in keeping with channel components, like lack of familiarity with annuities or how precisely to go about shopping for them, being main impediments to annuitization.


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