Insight: The Annuity Puzzle and Bequest Motives

By Jason Fichtner

Insight Overview


The author’s research findings suggest the following insights and ideas: (1) Individuals without bequest motives (i.e., those who do not wish to leave assets to their heirs) gain more from annuitizing their wealth than those with bequest motives, because an annuity enables an individual to use wealth to finance spending during life, wealth that might otherwise end up as a bequest. (2) Bequest motives could explain the low demand for annuities, particularly within the upper half of the income distribution, since those in the bottom half of the income distribution are already provided a strong annuity benefit through Social Security. Based on the author’s findings, we suggest that, to increase annuitization rates among those with a bequest motive, financial advisors focus on annuity death-benefit options.

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About the Author

Jason J. Fichtner is Chief Economist at the Bipartisan Policy Center and Senior Fellow at the Retirement Income Institute.

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