How can governments, life insurers, employers and financial advisors really, truly persuade people in their 50s, 60s or even 70s to do something about income planning today?
Hal Hershfield — a UCLA scientist who studies how people make decisions — looks at that question in a working paper written with a star-studded team of researchers that included Suzann Shu, Jeffrey Brown, Abigail Hurwitz, Moshe Arye Milevsky, Olivia Mitchell and Tamiko Toland.
The paper is a review of income planning research.
One of the ideas listed under the "consumer behavior" heading in the table at the end of the paper has to do with consumption framing.
"Present annuities as consumption insurance rather than investments, emphasizing the spending power and income security they provide rather than rates of return," Hershfield's team suggested.
One 2008 study shows that presenting annuities in a consumption frame increases the hypothetical purchase rate by 70%, the researchers said.
What it means: Converting aging Americans into income planning arrangement purchasers has become an important research topic.
More decision support ideas: Four other ideas that advisors can put to work, without waiting for government policymakers or insurance companies to implement the steps listed in their sections in the table, are:
◆ Increasing consumers' overall financial and annuity literacy.
◆ Educating consumers about the possibility that they could live longer than expected.
◆ Fighting "present bias" by making their future selves seem more real, by, for example, showing people what they might look like when they're older.
◆ Displaying annuity information in a way that helps consumers see projected annuity payouts in terms of monthly income, coverage of current expenditures, and how much income they will need on top of what Social Security is supposed to pay.
The paper: A working paper is an academic paper that has not yet gone through a full peer review process.
The paper is available behind a paywall on the website of the National Bureau of Economic Research.
Allison Bell can be reached at allison.bell@arc-network.com.
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