Annuities and Retirement Well-Being

This chapter analyzes pre-retirement expectations and post-retirement well-being, in particular their association with the degree to which retirees’ financial resources are in the form of annuities. Using the 1992-2000 Health and Retirement Study (HRS), we find that most retirees were very satisfied with their overall situation, but the degree of satisfaction varied substantially with retirees’ characteristics. In particular, people in better health and with more financial resources tended to be more satisfied. Controlling for the present value of retirement resources and other factors, we find that retirees who could finance more of their consumption in retirement with pension annuities (vs. Social Security benefits and accumulated savings) were more satisfied. Retirees with lifelong annuities also tended to maintain their level of satisfaction during retirement, whereas those without tended to become less satisfied over time. We find the very same patterns with alternative depression-related measures of well-being in retirement. The findings have important implications for the well-being of future American retirees, who are increasingly reliant on defined contribution pension plans rather than traditional defined benefit pensions.