Insight: The Decision to Annuitize: Reconciling Economic Theory and Consumer Behavior Using Behavioral Economics
By Jason Fichtner
How annuity decisions are framed has a major impact on an annuitization decision. Based on our review of the authors’ research findings, we suggest pursuing the following ideas: (1) Reduce the complexity that individuals face as they decide between receiving their retirement benefit in the form of an annuity versus receiving it in the form of a lump-sum payment, by presenting the information in a clearer manner. (2) Explain the trade-offs of drawing down non-annuitized financial resources more slowly or more rapidly during retirement, before asking individuals whether they would rather receive their retirement benefit in the form of an annuity or a lump-sum payment. And (3) improve financial literacy among American adults as a way to improve their ability to accurately assess the value of an annuity.
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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.