Consumer Preferences for Annuities: Beyond NPV

Although consumer financial decision making has attracted renewed attention from marketing researchers, issues of consumer decumulation of retirement wealth have remained relatively unexplored. Research on decumulation presents an interesting problem for both behavioral and quantitative marketing researchers; it is a choice problem with large stakes, multiple sources of uncertainty, and difficult tradeoffs. As a contribution to such research, we measure and model individual preferences for life annuities using a choice-based stated-preference survey of adults aged 45-65 from a nationwide internet panel. Each annuity is presented in terms of its consumerrelevant attributes such as monthly income, yearly inflation adjustments, period certain guarantees, and company rating, and includes a “no choice” option that allows consumers to selfmanage their assets. Our model of preferences allows each attribute to influence utility beyond its influence on the expected present value of the annuity, i.e., the expected NPV of the payments. We find that some attributes directly influence preferences beyond their impact on NPV and that valuation of those attributes depends on how information is displayed. We end by discussing the implication of such preferences for marketers and policy makers interested in promoting annuitization.