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EMAC 2019 Annual Conference

The Psychological Impact of Annuities: Can Pension Payout Choice Influence Health Behavior?

Published: May 28, 2019


Anja Schanbacher, Duke University; David Faro, London Business School; Simona Botti, London Business School; Shlomo Benartzi, UCLA Anderson School of Management


Consumer financial decision making; Annuities; Helath Behavior


Whether to decumulate their retirement savings in the form of a lump-sum or as lifelong monthly income (also referred to as an annuity) is one of the most important financial decisions consumers face. Policy makers around the world are debating whether to encourage or mandate annuitization. These discussions largely focus on the financial consequences for consumers. We add to the policy debate by documenting a previously unidentified benefit annuities may entail: they may boost health related behaviors. We randomly assign participants to an annuity or a lump-sum condition and find evidence that, compared to receiving a one-time lump-sum payment, receiving lifelong income where total payout increases with length of life can boost hypothetical and actual health-related behavior. This potential effect should be considered in the public policy debate.