Working Paper: NBER ID: w18575
Authors: John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian; Stephen P. Zeldes
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.
Keywords: annuitization; retirement; pensions; behavioral finance
JEL Codes: D03; D14; G11; J14; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Allowing individuals to annuitize a fraction of their wealth (G51) | Annuitization rates (G52) |
| Framing changes focusing on flexibility and control (E61) | Annuitization rates (G52) |
| Investment framing (G11) | Annuitization rates (G52) |
| Concerns about later-life income spending flexibility (D15) | Annuitization decisions (G52) |
| Enhancing information about inflation impacts (E31) | Demand for cost-of-living adjustments in annuities (G52) |
| Preferences for annuity payout structures (G52) | Demand for annuitization (G52) |