New Evidence on the Intensive Margins of Annuity Demand

• In Event: From Paycheck to Payout: Wealth and Income in Retirement

Abstract

Defined contribution plan participants are responsible for converting their retirement assets into income. A substantial literature mostly examines the extensive margin on whether to annuitize any assets in retirement, rather than the intensive margin (how to structure annuity contracts in retirement). In this paper, we examine the intensive margins of annuity demand using administrative data from TIAA annuitants. Over the 25-year period between 2000 and 2024, we find that participants started taking annuity income later in life (3.7 years). However, gender age differences remain constant, with new male annuitants about one year older than new female annuitants in each year. Males are significantly more likely to choose a joint life annuity, with two-thirds of males choosing this option compared to only one in three females, with little variance across our time-period. Most annuitants choose a guarantee period – a proviso that continues paying benefits even if the annuitant dies. We find a marked decrease in the use of variable annuities over the sample period. In 2000, 52% of annuitants chose a combination of fixed and variable annuities, while in 2024 about 85% used only a fixed annuity. Most retirees use a partial annuitization strategy, with the fraction of assets annuitized declining monotonically by retirement wealth, a pattern stable throughout our sample period. We offer insights into the complexity of the annuity decision, how retirees with differing attributes select intensive margins, and highlights some of the difficulties of implementing a default retirement annuity.

Authors

• Brent J. Davis, TIAA Institute

• James Poterba, MIT and NBER

• David P. Richardson, TIAA Institute

• Jeffrey R Brown, University of Illinois and NBER