How Life Expectancy Perceptions Impact Annuity Purchases

Researchers’ own “objective” life expectancy estimates have a bigger correlation with how likely U.S. consumers are to own annuities than the consumers’ own life expectancy estimates do, researchers say.

When Karolos Arapakis and Gal Wettstein calculated a consumer’s life expectancy themselves, one year of extra life expectancy correlated with an increase in the probability that a consumer would ever buy an annuity by 0.2 percentage points, to 9%, according to a new working paper.

When consumers estimated their own life expectancy, an extra year of consumer-predicted life expectancy correlated with an annuity ownership level increase of just 0.023 percentage points.

What It Means

If the researchers are right, correcting consumers’ ideas about how long they will live could affect how likely they are to buy annuities.

But outside observers’ life expectancy forecasts could have a much bigger impact than consumers’ own life expectancy estimates.

Methods

Arapakis and Wettstein, economists at the Center for Retirement Research at Boston College, used data collected from 2000 through 2016 by the University of Michigan’s Health and Retirement Study survey program.