Subjective Survival Expectations and Annuitisation Decisions

Tianyu Pang
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Tianyu Pang: University of Cambridge

Review of Economic Dynamics, 2026, vol. 62

Abstract: This paper estimates a dynamic model of annuitisation in which individuals hold subjective survival beliefs that may differ from their actual mortality risk. I show that biased survival beliefs reduce annuitisation at retirement but generate additional annuity demand at older ages. Overall, individuals under-annuitise by 10.1% during retirement and delay the average age of annuitisation by 3.7 years relative to the objective benchmark. The average welfare loss resulting from biased survival beliefs is equivalent to 2.9% of retirement-age assets. About 31% of this loss is attributable to pessimism about survival, while the remaining 69% reflects misperceptions of how mortality risk increases with age. Counterfactual policy experiments suggest that subsidies for annuity purchases early in retirement financed by taxing later purchases would improve welfare. (Copyright: Elsevier)

Keywords: Annuity market; dynamic structural model; biased beliefs (search for similar items in EconPapers)
JEL-codes: D15 G22 J14 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1016/j.red.2026.101365

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