WHAT CAN SCHOLARLY RESEARCH TELL US ABOUT COGNITIVE AND BEHAVIORAL IMPEDIMENTS TO ANNUITIZATION? DO THESE IMPEDIMENTS VARY WITH RACE/ETHNICITY AND GENDER?
By Anthony Webb
This essay surveys the academic literature on behavioral impediments to annuitization, and finds that the framing of annuitization as an investment or a consumption decision can affect whether households annuitize. Households struggle to compare lump sums with income streams, but appear to be able to make context-specific choices between a lump sum and lifetime income. Complexity has been shown to be a deterrent to annuitization, but the effects of financial literacy are unclear. This essay questions whether the results of laboratory experiments are predictive of real-life behavior, and identifies factors such as procrastination that are not captured by laboratory experiments but that could affect the annuitization decision. This essay concludes by proposing lessons for financial advisors and policymakers, and suggesting directions for future research.
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About the Author
Anthony Webb is Senior Fellow at the Schwartz Center for Economic Policy Analysis, The New School.