What Matters for Annuity Demand: Objective Life Expectancy or Subjective Survival Pessimism?


The brief’s key findings are:

  • Few people buy annuities, which has long puzzled researchers.
  • This study assesses the relative importance of two potential reasons for this low demand:
    1. annuity prices are based on the longer objective life expectancy of those who buy them, making them expensive for others; and
    2. people in their 50s and 60s are too pessimistic about their life expectancy, so they place a lower value on annuities.
  • The results show both factors impact annuity demand, but objective life expectancy has a much larger effect than pessimism.
  • The implication is that a larger public role may be required to boost annuitization.

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