Are Cognitive Constraints a Barrier to Annuitization?
The brief’s key findings are:
- Even though retirees are increasingly responsible for deciding how to draw down their assets, few buy annuities.
- Researchers have offered a host of explanations for the limited take-up, but the puzzle has never been solved.
- This analysis finds that valuing annuities is hard for people, so they may only buy one if offered a very good deal.
- To test this finding, alternative explanations were explored and the results were negative, strengthening the conclusion that people find annuities hard to value.
- These results suggest that many individuals, on their own, may have difficulty making well-informed choices about managing their money in retirement.