What You Need to Know
- A Morningstar researcher asked the same questions about a hypothetical product with different names and got different answers.
- Participants who were more worried about running out of money were more attracted to deferred annuities.
- Participants more comfortable with buying an income product reported more willingness to delay claiming Social Security benefits.
Retirement experts have often said that the name “annuities” should be changed due to the historically bad reputation of these products. With a resurgence of this retirement product, one researcher looked at why it matters what a product is called.
In his research paper “People Prefer a Guaranteed Income Stream for Life Over an Annuity,” Stan Treger, senior behavioral scientist at Morningstar, found two key points: (1) People are more willing to use their 401(k) to purchase a guaranteed income stream for life rather than an annuity, and (2) the thought of running out of money in retirement increases preferences for deferred over immediate annuities.
Treger’s research was most interested in “whether the label of the product alone can ‘make or break’ its appeal to prospective retirees.” He used the terms “annuity” vs. “guaranteed income for life” to determine the response by participants.
He also looked at the “psychological foundations behind annuity choice,” or how those who were interested in annuities chose from products with different features.
The research included 1,067 U.S. residents over 30 who were employed or about to begin work.
The study asked several questions about a retirement product. For about half of participants, the product was described as “a guaranteed stream of income for life.” For the other half, it was described as an “annuity.”