13th annual Municipal Finance Conference


13th annual Municipal Finance Conference


Can annuities become a bigger contributor to retirement security?

California state worker Curtis Walker looks over retirement plan brochures at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES BUSINESS) - WASE5AM03UX01
Editor's note:

This report was produced in concert with the event, “Retirement Policy and Annuitization: A View from the Experts,” held at Northwestern University’s Kellogg School of Management on May 9, 2019 and co-sponsored by Brookings and the Kellogg Public-Private Initiative. The other reports from the event discuss automatic enrollment in annuities and using behavioral insights to increase annuitization rates.


The gradual disappearance of traditional pensions as a benefit to private-sector workers has shifted a great deal of risk onto individuals. While the share of workers covered by some sort of workplace retirement plan has stayed mostly stable over time, the changing nature of those plans suggests that many retirees would be better off directing some portion of their liquid assets to an annuity. Instead, annuitization rates have remained low, producing what economists call the “annuity puzzle”—a disconnect between predicted and observed demand for annuities. This paper reviews explanations of the annuity puzzle and examines the nature of the market for annuity products in practice, highlighting, in particular, how some annuities (accumulation annuities) are often used to lower tax burdens rather than boosting lifetime income. This paper also reviews strategies for improving take-up of lifetime income products, including better access to annuities in workplace plans and better understanding of the role of lifetime income in a stable retirement.