Annuitization Puzzles

摘要

The notion that consumers are simply not interested in annuities is clearly false. Social Security remains a wildly popular federal program, and those workers who still have denned benefit pension plans typically choose to retain the annuity rather than switch to a lump-sum distribution. Furthermore, when participants in denned benefit pension plans with built-in annuitized payout are offered the opportunity to switch to a defined contribution plan, most stick with what they have (Brown and Weisbenner, 2009). The tiny market share of individual annuities should not be viewed as an indicator of underlying preferences but rather as a consequence of institutional factors about the availability and framing of annuity options. A substantial proportion of retirees choose an annuity when they are presented with that option at an appropriate age and have accumulated enough of a stake to make annuitization sensible. We believe that many participants in denned contribution retirement plans would prefer to annuitize as well, but not if they have to do all the work of finding an annuity to buy, as well as bear the risk and responsibility for having picked the annuity supplier. Furthermore, even if participants can make a seamless transition from investing to annuitizing (as TIAA-CREF participants can do), mental accounting often does not make the transaction from accumulating assets in a defined contribution plan to an annuity payout appear attractive. An annuity should be viewed as a risk-reducing strategy, but it is instead often considered a gamble: "Will I live long enough for this to pay off?"