The Importance of De-Emphasizing Death or Dying When Promoting Annuities
The annuity puzzle refers to the low rate at which retirees buy annuities even though economists and financial planners recommend annuities as an optimal decision. Many explanations for the annuity puzzle have been forwarded, including low retirement savings, unfair annuity pricing, annuitization framing, decreased flexibility in accessing one’s money, the possibility of default by the financial company, and the inability to bequeath assets that are invested in the annuity. Yet none of these explanations, nor the adjusted products that have been offered as a result of these concerns, have put much of a dent in the annuity puzzle. Annuities as a share of overall retirement wealth are still very small in the United States.
Rather than focusing on rational economic theory, Salisbury and Nenkov turn to behavioral economics and psychological studies of the choice whether to invest in annuities as part of one’s retirement strategy. Their principal insight is that the task of buying annuities causes anxiety because it evokes thoughts of one’s own death. They refer to this phenomenon as mortality salience, or the increased accessibility of thoughts related to one’s death. The professors write, “When the problem of death enters current focal attention and death-related thoughts enter consciousness, proximal defenses that serve to remove death-related thoughts from consciousness are activated” (418; emphasis added). Through four studies, Salisbury and Nenkov show that people seek to suppress their death-related thoughts by avoiding the purchase of annuity products.