Framing Lifetime Income

We provide evidence that individuals optimize imperfectly when making annuity decisions, and this result is not driven by loss aversion. Life annuities are more attractive when presented in a consumption frame than in an investment frame. Highlighting the purchase price in the consumption frame does not alter this result. The level of habitual spending has little interaction with preferences for annuities in the consumption frame. In an investment frame, consumers prefer annuities with principal guarantees; this result is similar for guarantee amounts below, at, and above the purchase price. We discuss implications for the retirement services industry and its regulators. We thank Abby Sussman for exceptional research assistance. An earlier draft of this paper, co-authored with Garth Wiens, was circulated under the title “Framing, Reference Points, and Preferences for Life Annuities.” We are grateful to the Pew Charitable Trusts, MacArthur Foundation, the Mott Foundation, and the TIAA-CREF Research Institute for financial support. The views expressed in this paper are those of the authors and should not be interpreted as those of any of the organizations that funded this research or with whom the authors are affiliated. Financial disclosure: Jeffrey R. Brown serves as a Trustee for TIAA and has received compensation as a speaker from companies that sell retirement income products.