Why aren’t annuities more popular for people close to or at retirement age? With people expected to live longer, annuities, which provide income for as long as you live for an upfront payment, seem like the perfect solution. Marketing professors at Boston College may have come up with a clever reason according to an article in Consumer Affairs based more on behavioral science that logic or sound economic theory.
People don’t want to think about their demise as if not thinking about it, or not preparing for it, will make it go away. This “reasoning” can apply to wills, life insurance and estate planning. The professors noted, “When you think about an annuity, you have to think about how long you have left to live, how many years you need to finance. You have to think about dying — that’s part of the annuity process, and when people do that, it turns them away.” It’s similar to why people don’t save more for retirement when they are younger. Who wants to think about themselves 30 years older?
Experts have suggested that the cost and inflexibility of losing control of their money have been the reasons for people not buying annuities but the reasons may be more psychological according to the BC research. In fact, when asked about annuities in two different ways, interest plummeted when the question mentioned death. IRAs don’t carry the same stigma.
Of course, there could be another reason that people don’t like annuities according to a commenter to the article: “Maybe it is because once they sell you one annuity they keep bugging you to buy more.”
While another reader added, “And will do so for as long as you live or until you die. Whichever comes first.”
