How Do Financial and Longevity Literacy Affect Annuity Demand?

Jeffrey Brown

No 35323, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Deciding whether to use an annuity to draw down accumulated retirement wealth is among the most complex financial decisions individuals face. It requires reasoning about longevity risk, stochastic income streams, and largely irreversible tradeoffs, often at older ages and with limited opportunities to learn from experience. This paper reviews theoretical, empirical, and experimental research to examine how financial literacy and longevity literacy shape annuitization decisions. While some extensions of the standard lifecycle model can rationalize low annuity demand, their explanatory power depends on individuals’ ability to optimize over a set of complex risks and tradeoffs. Evidence shows that, although financial and longevity literacy are only weakly and inconsistently related to annuity take-up, they are strongly associated with retirement planning, the coherence of annuity valuations, and sensitivity to framing and choice architecture. These patterns suggest that literacy should be understood not as a direct determinant of annuity demand, but as a constraint on the extent to which observed annuitization behavior can be interpreted as revealing true preferences.

JEL-codes: D14 G41 G52 H0 (search for similar items in EconPapers)
Date: 2026-06
Note: AG
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w35323.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:35323

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w35323
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().