Thoughts of Mortality May Inhibit Annuity Use

Mortality salience—increased accessibility of death-related thoughts—is a previously unexplored explanation for the low rate at which retirees buy annuities even though economists recommend annuities as an optimal decision, researchers contend.

Linda Court Salisbury and Gergana Y. Nenkov of the Carroll School of Management at Boston College, conducted several studies that found the task of choosing an annuity increases mortality salience by forcing people to consider their own death and motivates consumers to escape thinking about their mortality by avoiding the annuity option. The studies controlled for a number of relevant factors, including subjective life expectancy, mood, desire for flexibility and control, trust and age.

In some studies, they used low mortality salience annuity descriptions, such as, “In return for that lump-sum investment, you receive a series of regular monthly payments each year you live, after which any remaining amount stays with the financial company,” versus, “In return for that lump-sum investment, you receive a series of regular monthly payments until you die, after which any remaining amount stays with the financial company.” The studies yielded an average 11.53% point decline in annuity choice rate when mortality salience increased.

The researchers contend their findings compel policy makers and annuity providers to develop practical approaches to decreasing mortality salience during the decision process. They also suggest further research should examine mortality salience’s effects on financial on decumulation decisions for employer-sponsored retirement plans.

The research report, “Solving the annuity puzzle: The role of mortality salience in retirement savings decumulation decisions,” posted in the Journal of Consumer Psychology, is here.