Study Lists Reasons People Open to Buying Annuities Don’t Follow Through
An individual who wants to buy an annuity must find a provider they trust, choose among many options, contact the insurer, and contract with them. Image: RAGMA IMAGES/Shutterstock.com
By: FEDweek Staff
Of investors who are open to buying annuities with their savings, only a small percentage actually go through with it for reasons including the difficulty of fully understanding them and going through the process to make a purchase, a study has found.
The study by the Center for Retirement Research did not focus on the federal Thrift Savings Plan but its findings could shed further light on why so few TSP investors—only low single-digit percentages—purchase annuities on separating from federal employment, compared with those who take regular or irregular lump-sum payments.
The study examined investors with at least $100,000 in investable assets—less than the average TSP account—and found that half would not even consider purchasing an annuity. Reasons for wanting to keep the money under personal control include desire to leave money in lump-sums as bequests; concern about potential future large expenses such as long-term care; and pessimism that they will live long enough to come out ahead on the purchase.
However, within the 50 percent who said they would be interested in purchasing an annuity, only 12 percent did so while the other 38 percent did not—meaning that “wanting to buy an annuity is meaningfully removed from actually buying one,” the study said.
“In reality, an individual who hypothetically wants to buy an annuity must know that such a product exists, find a provider they trust, choose among the many complex product options and riders, contact the insurer, and contract with them. Each of these steps might in turn require multiple smaller actions and bits of information; the failure of any of them could become an insurmountable obstacle to annuitization even for a person who wants to annuitize in the abstract,” it said.
For example, only 40 percent of the more than 1,000 respondents said they are even only “somewhat familiar” with how annuities work, “and this finding likely represents an overestimate if respondents do not like to admit ignorance.”
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TSP Investors Handbook, 8th Ed.
