A New Take on the Annuity Puzzle
Sound economic models of rational human behavior predict that individuals planning their retirement will buy an annuity to protect themselves against the risk of running out of money. Why, then, do so few people who are planning for retirement buy an annuity that would provide guaranteed lifetime income? That question is known as the annuity puzzle (Brown et al. 2017).
People rarely make financial decisions in a vacuum, however. Economic models do not fully take into account the power of emotion, biases, and other countervailing forces in any financial decision. This essay will explore the countervailing forces and propose additional research and solutions geared to solve the annuity puzzle. Finally, it will propose a new retirement puzzle, of which an annuity is an essential piece.