Academy of Financial Services
Theoretically risk-averse individuals should demand annuities as they provide a guaranteed income stream for life and hedge against longevity risk. Risk preferences should affect annuitization decisions, but few studies have empirically tested this relation. We attempt to bridge the gap empirically by investigating the relationship of individual risk aversion and annuitization decisions by utilizing two different risk questions. Using data from the 2012 wave of the Health and Retirement Study, we find that individuals who are in higher risk aversion groups are more likely to have annuity income compared to those in lower risk aversion groups. Financial planning implications are provided.
Author(s): Yi Liu, Michael Guillemette