Living annuity satisfaction

Abstract

Orientation: As a standard practice, retirement capital is converted into either an immediate life annuity (annuitisation), affording significant protection against longevity risk or a living annuity (self-annuitisation), exposing capital to volatile investment returns. Research purpose: This article presents a number of exploratory factors (based on annuity puzzle literature) that associate with retirees’ satisfaction levels, with respect to the eventual outcome of their living annuity choice. Motivation for the study: Reticence among retirees to protect themselves against longevity risk is an annuity puzzle that has been the subject of vigorous academic debate. Research approach and method: A quantitative research approach was followed by performing an ordinary least squares (OLS) linear multiple regression analysis in order to ascertain which factors associate with the satisfaction levels of living annuitants. Main findings: The most interesting conclusion is that, although one would expect active involvement in managing retirement capital among living annuitants to contribute to satisfaction levels, the desire to control and manage living annuity capital in the pursuance of capital growth, actually significantly contributes to retiree discontentment or dissatisfaction. Practical implications: Financial education and counselling with respect to optimal annuity decision-making could restore the promise of retirement income security. Contribution: Identifying the annuity puzzle factors (previously mainly reserved for immediate life annuities) that are associated with living annuitant satisfaction levels, serve as the basis for the contribution of this study.

Keywords

• annuity puzzle
• annuity income product(s)
• living annuity (self-annuitisation)
• immediate life annuity (annuitisation)
• annuity decision-making
• investment risk
• longevity risk
• retirement satisfaction