Insight: New Takes On The Annuity Puzzle: The Importance of Framing Longevity With Clients

By Dr. John C. Butler

Insight Overview


IIn general, asking clients to think about whether they will be alive by – as opposed to deceased by – a given age will lead to longer estimates of expected lifetime.

• Ask clients to consider the state of their personal health and lifetime estimate before talking about purchasing an annuity.

• When asking for estimates of ages under 80, ask client the chance they will be alive by age X; for age estimates over 80, ask client for chance they will be
deceased by age X.

• There is also evidence that personal information about health state matters more that publicly available demographic data when estimating life expectancy high lighting the importance of talking with clients rather than using an actuarial approach.

Read the full Insight

About the Author

DR. JOHN C. BUTLER is a Clinical Associate Professor, Academic Director of the Kay Bailey Hutchinson Energy Center for Business, Law and Policy, and the Program Director of the Masters of Science in Finance program at the University of Texas at Austin. He received his PhD in Management Science and Information Systems from the University of Texas at Austin and a BBA in Management Information Systems from Texas A&M University in College Station, Texas. His research interests involve the use of decision science models to support decision making, with an emphasis on decision and risk analysis models with multiple performance criteria. Dr. Butler has consulted with several organizations regarding the application of decision analysis tools to a variety of practical problems, including management of natural gas storage facilities, disposition of surplus weapons-grade plutonium, estimation of the size of a coal pile at a generation facility, valuation of gas and oil properties and evaluation of electricity generation assets.

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