Improving Longevity Literacy increases likelihood of purchasing an annuity securing lifetime income

New York, Feb. 14, 2023 – TIAA Institute research fellows at the Center for Retirement Research (CRR) at Boston College found that improving longevity literacy – knowing one’s life expectancy – makes retirement savers more likely to purchase an annuity.

CRR researchers Karolos Arapakis and Gal Wettstein address the "annuity puzzle," or the question of why consumers don’t buy annuities to create pension-like income for life. One proposed explanation: consumers don’t think they’ll live long enough to justify the need.

In what’s referred to as "subjective survival pessimism," evidence from multiple studies suggests that individuals in their 50s and 60s are pessimistic about their remaining life expectancies. Such pessimism makes them bearish on the years they have left to live and therefore underappreciate the need for lifetime payouts from an annuity.

Individuals may also have poor understanding of "objective life expectancy," which is a person’s life expectancy based on demographics and health characteristics. Similar to survival pessimism, underestimating objective life expectancy can lead them to also undervalue the need for lifetime income.

Their research suggests that improving longevity literacy, by helping older Americans better understand objective life expectancy, is more important than reducing subjective pessimism in the decision of whether to use lifetime income in retirement. They find that retirement savers with better knowledge of objective life expectancy are nine times more likely to purchase annuities as part of their retirement income strategy.

Read more about the relative importance of objective life expectancy and subjective survival pessimism in annuitization decisions, here.

About the TIAA Institute

The TIAA Institute helps advance the ways individuals and institutions plan for financial security and organizational effectiveness. The institute conducts in-depth research, provides access to a network of thought leaders, and enables those it serves to anticipate trends, plan future strategies and maximize opportunities for success. For more information about the TIAA Institute, visit www.tiaainstitute.org

About the TIAA

TIAA is a leading provider of secure retirements and outcome-focused investment solutions to millions of people and thousands of institutions. It is the #1 not-for-profit retirement market provider¹, paid more than $6.4 billion in lifetime income to retired clients in 2021 and has $1.2 trillion in assets under management (as of 9/30/2022)².