Deferred Income Annuities: Loved by Economists, Ignored by Investors
August 21, 2019 by Melanie Waddell
Retirees are weathering retirement under “substantial risk and uncertainty” by not choosing a deferred income annuity — a product “that specifically targets longevity risk” and is much loved by economists, according to retirement experts.
In a their paper, Can Annuities Become a Bigger Contributor to Retirement Savings?, written for the Brookings Institution, Martin Baily and Benjamin Harris write that despite their benefits, use of deferred income annuities “has seen close to zero take-up in recent years.”
Academic literature on annuities has analyzed the benefits of deferred income annuities, the paper states.
Such a policy could be purchased at the date of retirement, or earlier by making contributions to a policy during working life. A deferred income annuity policy pays nothing until the person reaches old age, say 80 or 85 years, at which point it pays a fixed amount each month or quarter.