Examining the Barriers to Annuity Ownership for Older Americans
Hallie Davis, Andrea Hasler, and Annamaria Lusardi
Abstract: The annuity take-up rate is lower than economic theory predicts.1 Using data from the 2018 National Financial Capability Study, we conduct an empirical analysis of individuals in the retirement-planning phase of the life cycle (ages 40–61) and individuals of retirement age (age 62 and over). We examine individuals’ balance sheets, financial situations, and retirement planning steps to understand the barriers to annuity ownership, and we identify the financial and sociodemographic factors that contribute to annuity ownership. We find that debt obligations, lack of access to liquidity, and low financial literacy are all likely barriers to annuity ownership; the annuity owners in our sample are more likely than the non-owners to have access to liquidity and to report higher levels of financial satisfaction. Results indicate that access to liquidity and to professional investment management are positively associated with annuity ownership. Furthermore, financial literacy could lead to improved take-up rates through improved access to liquidity. These findings lead us to conclude that efforts to improve individuals’ financial literacy levels may lead to enhanced retirement outcomes.
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