Insight: The Value of Annuities vs. Lump-Sum Payments for Retirees
By Matteo Leombroni
IDEAS IN THE INSIGHT YOU CAN PUT INTO ACTION
This study finds that small changes in annuity pricing (e.g., due to the introduction of tax subsidies) are unlikely to increase annuitization rates by an economically significant amount. Policymakers should explore the efficacy of solutions that are more cost-effective, such as making life annuities the default retirement payout choice in retirement plans. This would also temper the behavioral biases associated with financial decisions. The study also finds that financial literacy is consistent with higher annuitization, and therefore policymakers could incentivize the financial training of potential retirees.
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About the Author
Matteo Leombroni is a PhD student in economics at Stanford University. He was the Financial Security Fellow of the Stanford Center on Longevity. He earned a bachelor of science degree in economics from Libera Università Internazionale degli Studi Sociali “Guido Carli” (LUISS University) in Rome, and a master of science degree in finance from Università Bocconi (Bocconi University) in Milan, Italy.