A 2023 study by the Center for Retirement Research (CRR) at Boston College, authored by Karolos Arapakis and Gal Wettstein, investigates the “annuity puzzle”—why annuities, which provide guaranteed lifetime income, are underutilized despite their potential to mitigate retirement risks. Titled “How Much Do People Value Annuities and Their Added Features?”, the study, conducted in June 2023, surveyed 1,216 individuals aged 55–95 with at least $100,000 in investable assets to assess annuity demand, barriers, and preferences. Its findings highlight significant interest in annuities, logistical impediments to ownership, and implications for product design, with connections to lifespan variation underscoring their value.
The study reveals strong latent demand: 76% of respondents value financial products offering lifetime income, and 54% of those without annuities express interest in purchasing one. However, only 12% own annuities, primarily due to logistical barriers such as difficulty understanding products, navigating the market, and completing purchases. Approximately 50% of respondents are willing to buy annuities at prevailing market rates, far exceeding actual ownership, suggesting that complexity, not lack of perceived value, hinders adoption. Notably, additional features like bequest options (returning premiums to heirs) or liquidity (withdrawing principal) do not significantly increase interest, indicating simpler annuity designs may be more effective.
Lifespan variation amplifies the appeal of annuities, as retirees face uncertainty about how long their savings must last. CRR research, including related studies, notes that life expectancy varies widely: for example, a 65-year-old in 2023 has an average life expectancy of about 85, but 20% of men and 30% of women may live past 90. This longevity risk, coupled with market volatility, makes annuities attractive for ensuring income stability. The study’s findings suggest that annuities address this uncertainty by providing “peace of mind,” a key driver of their appeal.
To encourage annuity adoption, the study advocates simplifying access, enhancing education, and integrating annuities into workplace retirement plans. By reducing logistical hurdles, providers can align products with the high demand for guaranteed income. The preference for straightforward annuities also supports streamlined offerings over complex, feature-heavy designs. Overall, the CRR’s research underscores annuities’ potential to improve retirement security, particularly for those concerned about outliving their savings.
Want to learn more about annuities and determine if they’re a good fit for your retirement plan? Reach out to a Federal Retirement Consultant® for more information.
