A Disconnect Between Desire and Action

New research shows that 79% of retirees want a guaranteed income for life, yet only 10% plan to buy an annuity. Given that annuities provide precisely this guarantee, the disconnect raises an important question: Why do so many people reject annuities despite valuing financial security?

The Role of Misconceptions

One explanation is money illusion, where retirees mistake a fixed nominal annuity for an inflation-protected income. Many assume that an annuity will maintain its purchasing power, when in reality, a level annuity loses value over time due to inflation.

The Preference for Flexibility

Many retirees prefer drawdown strategies over annuities because they offer greater flexibility. Retaining control of capital allows for:

• Adjustments in spending based on lifestyle needs.
• The ability to pass on remaining wealth to heirs.
• The opportunity to stay invested in equities, potentially achieving higher long-term returns.