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

TitleWhat Matters for Annuity Demand: Objective Life Expectancy or Subjective Survival Pessimism?
Publication TypeReport
Year of Publication2023
AuthorsArapakis, K, Wettstein, G
Series TitleWorking Papers
Document NumberWP#2023-2
InstitutionCenter for Retirement Research at Boston College
KeywordsAnnuity, Life Expectancy, Survival expectation
Abstract

Objective life expectancy and subjective survival pessimism (defined as the difference between objective and subjective life expectancy) may both affect the demand for annuities. The question this project answers is: how do these two explanations contribute to annuitization decisions in practice? To explore this question, the analysis estimates regression models that include objective life expectancy, subjective survival pessimism, and other characteristics that are linked to annuitization decisions. The results show that, as one would expect, individuals with higher objective life expectancy are more likely to buy an annuity. Similarly, less pessimistic individuals are also more likely to buy an annuity. A one-year rise in objective life expectancy increases the probability of buying an annuity product by 0.20 percentage points, which is nearly nine times larger than a one-year decline in pessimism.

URLhttps://crr.bc.edu/working-papers/what-matters-for-annuity-demand-objective-life-expectancy-or-subjective-survival-pessimism/
Citation Key12883