Determinants of the Stated Probability of Purchase for Longevity Insurance

Guillemette, Michael A.; Martin, Terrance K.; Cummings, Benjamin F.; James, Russell N.

doi:10.1057/gpp.2015.26

Cited by 15 publications

(7 citation statements)

References 22 publications

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“…Finally, Guillemette et al. () find no specific dependence between other sources of retirement income and the demand for annuities.…”

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 98%

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What Do We Know About Annuitization Decisions?

Alexandrova¹,

Gatzert²

2019

Risk Manage Insurance Review

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Against the background of aging societies and increasing life expectancies, the protection of individuals from outliving their savings has become increasingly relevant. Annuities represent insurance against longevity risk and can prevent old‐age poverty. The aim of this article is to present the current state of theoretical, empirical and experimental evidence with regard to annuitization decisions. Toward this end, we conduct a systematic literature review that includes 89 articles. Based on this, we study welfare effects of mandatory annuitization, annuitization rates and the optimal fraction of wealth to be annuitized, as well as determinants of retirees’ choice to annuitize and their impact on annuity demand. Finally, we present possible solutions for overcoming the low uptake of annuities based on its causes. One main result is that behavioral biases in annuitization decisions particularly require considerably more theoretical research and empirical evidence, and that theoretical models already appear to well explain empirically observed annuitization rates.

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“…Finally, Guillemette et al. () find no specific dependence between other sources of retirement income and the demand for annuities.…”

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 98%

“…Overall, these aspects should make longevity insurance less attractive for women. On the other hand, unisex pricing (see, e.g., Chalmers and Reuter, ) and the on‐average longer life expectancy (see, e.g., Guillemette et al., ) may lead to opposite results.…”

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

What Do We Know About Annuitization Decisions?

Alexandrova¹,

Gatzert²

2019

Risk Manage Insurance Review

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“…Research has shown that older adults are more attracted to annuities than young adults (Alexandrova and Gatzert, 2019). Conversely, some studies show that young adults may be more likely to buy annuities (Guillemette et al. , 2016).…”

Section: Methodsmentioning

confidence: 99%

The nexus between investor sophistication and annuity insurance ownership: evidence from FINRA's National Financial Capability Study

Korankye

Pearson

Salehi

2022

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PurposeAlthough annuitization provides insurance against longevity risk that can benefit households, researchers have uncovered an annuitization puzzle, which suggests households are reluctant to annuitize their wealth. This study contributes to the discussions on the annuitization puzzle by examining investor sophistication and owning annuities in non-retirement accounts.Design/methodology/approachThe study utilizes data from the 2018 U S National Financial Capability Study (NFCS). The empirical analyses are based on logistic regression estimates of annuity ownership on investor sophistication. Interpretations are based on odds ratios.FindingsThe findings indicate that investor sophistication contributes to the annuity puzzle. Investors with low objective and high subjective investment knowledge (overconfident investors) are more likely to own annuities compared to those with low objective and low subjective investment knowledge. However, investors with high objective and low subjective investment knowledge (under-confident investors) are less likely to choose annuity ownership compared to those with low objective and low subjective investment knowledge. The findings and ensuing discussion highlight the importance of annuitization when planning for retirement, with implications for financial service professionals.Research limitations/implicationsThe measure of investor sophistication does not assess the difficulty level of each financial knowledge question. The questions used to construct the investor sophistication variable are based on general investment knowledge. In addition, the annuity ownership variable used in this study pertains to investments outside retirement accounts. Despite these limitations, the findings highlight the importance of annuitization when planning for retirement.Originality/valueUnlike prior studies, the authors consider four mutually exclusive measures of investor sophistication constructed from measures of objective and subjective investment knowledge to understand the effect of investor sophistication on annuity ownership in the United States.

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“…People who think that they may have shorter lives than their peers should in general choose to annuitize less of their retirement wealth. Empirical research mostly provided evidence to support this notion (Guillemette et al, 2016 ; Hagen, 2015 ). However, GM found an opposing effect of subjective life expectancy on the decision to annuitize retirement wealth but offered no explanation of this finding.…”

Section: Annuity Puzzle Explanationsmentioning

confidence: 99%

What matters in the annuitization decision?

Daya

Bernard

2022

Swiss J Economics Statistics

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We perform a simultaneous test for several rational and behavioral factors known to affect the uptake of life annuities in a sample of Americans. We also investigate whether analysts’ short-term stock market expectations affect the decision to annuitize retirement wealth. We find that facing such expectations without trusting them lowers the purchase of annuities. Moreover, we find that individuals who trusted financial analysts’ expectations were less likely to purchase annuities. We attribute these findings to the availability heuristic and present bias, respectively. Finally, we discuss the mediating role of annuity antipathy. Our results provide guidance for policy-makers and annuity providers and offer venues for future research.

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Determinants of the Stated Probability of Purchase for Longevity Insurance

Cited by 15 publications

References 22 publications

What Do We Know About Annuitization Decisions?

What Do We Know About Annuitization Decisions?

The nexus between investor sophistication and annuity insurance ownership: evidence from FINRA's National Financial Capability Study

What matters in the annuitization decision?

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