Insight: What Factors Influence Annuity Value for Money: Lessons from Other Countries
By Anthony Webb
IDEAS IN THIS INSIGHT YOU CAN PUT INTO ACTION
The studies reveal considerable dispersion in money’s worth (i.e.,the percent of premiums that annuity manufacturers return to purchasers as income), both across product types and between manufacturers. Relative to annuities that pay a level dollar benefit, inflation-indexed and escalating annuities have a lower money’s worth. But, annuity purchasers should not base their decision on money’s worth alone. Purchasers and their financial advisors also should consider the benefits offered. To illustrate, inflation-indexed annuities give households the certainty of being able to maintain their standard of living however long they survive, a certainty that is both valuable and prohibitively expensive to replicate by investing in financial assets.
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About the Author
Anthony Webb is research director of the Retirement Equity Lab at the New School in New York. He holds a Ph.D in economics from the University of California, San Diego. His publications in academic journals include several studies of annuity markets and post-retirement asset decumulation.