In a recent paper by Karolos Arapakis and Gal Wettstein, the "annuity puzzle" is thoroughly examined. Despite economic models suggesting that many retirees would benefit from annuities, only a small percentage actually opt for this financial product.

Uncovering the Real Reason Behind the Annuity Puzzle

While economists have dedicated significant time to understanding why individuals may choose not to annuitize, Arapakis and Wettstein take a different approach. They find that a substantial number of people do desire annuities, but encounter logistical obstacles when attempting to obtain them.

Insights from the Survey

To support their findings, Arapakis and Wettstein conducted a comprehensive survey in June 2023. The survey involved 1,216 individuals aged 55-95, all of whom possessed investible assets amounting to at least $100,000. Notably, this research also included a randomized control trial (RCT) module, which divided participants into three distinct groups.

Understanding the Control Group

The control group in the trial sought to determine the minimum annual lifetime annuity payment that would incentivize individuals to purchase an annuity with a $100,000 premium.

Exploring Treatment Groups

Both Treatment Group 1 and Treatment Group 2 were offered the same annuity as the control group but with additional features.

Treatment Group 1 was presented with an annuity that included a provision ensuring any remaining premium would be passed on to the heirs of the deceased.

Treatment Group 2, on the other hand, was provided with an annuity that offered a liquidity feature. This liquidity feature allowed purchasers to terminate the contract and withdraw the remaining premium if desired.


Arapakis and Wettstein's research sheds light on the barriers that prevent potential annuity holders from actualizing their desires. By analyzing a substantial sample size and implementing a randomized control trial, the study provides valuable insights into the annuity puzzle.

Additional Resources


Before the RCT began, a thorough investigation was conducted to understand the general perception of annuities among respondents. The results revealed that a significant majority, approximately 76%, recognized the value in owning a financial product that provides guaranteed income for life. Furthermore, between 60% and 76% of respondents agreed that lifetime benefits offer peace of mind, protect against longevity risk, and safeguard against fluctuations in the stock market. Interestingly, even individuals without an annuity expressed at least some level of interest, with 54% indicating their desire to explore products that offer lifelong income.

The Limitations of Direct Questions

Despite respondents' positive views on annuities, it is important to recognize that the survey's direct questions regarding annuity ownership do not necessarily indicate a genuine willingness to purchase these products. While annuities may seem appealing on the surface, potential customers might ultimately deem them unworthy of the associated costs.

Assessing Financial Preferences

To gain further insight into consumers' willingness to invest in annuities, respondents from the control group were surveyed about the minimum guaranteed annual income they would require to justify a $100,000 premium payment. Surprisingly, approximately half of the respondents stated a required payment amount that was lower than the payments offered by annuities available in the market for individuals of the same age and gender. Figure 2 effectively illustrates these findings specifically for men; however, similar trends were observed among women as well.

Exploring Additional Features

Curiously, the survey results also highlighted that individuals were not willing to pay a premium for annuities that included additional features, such as a bequest option offered to Group 1 or access to liquidity provided to Group 2.

Discrepancies between Perception and Action

The discovery that 50% of respondents expressed a willingness to purchase annuities at current market rates, despite the relatively low number of individuals who actually possess them, challenges the prevailing explanations for why people choose not to annuitize.

In conclusion, while the majority of respondents recognize the value and benefits of annuities, there is a disconnect between perception and action when it comes to actual purchase decisions. Further exploration into the underlying reasons for this discrepancy is warranted in order to gain a more comprehensive understanding of consumer behavior towards annuities.

The Demand for Annuities: Overcoming Logistical Challenges

Despite the growing interest in annuities, individuals often find themselves grappling with logistical hurdles when it comes to purchasing these financial products.

A Desire for Annuities

Recent studies indicate a clear desire among people to invest in annuities. This long-term financial tool offers a reliable income stream, making it an attractive option for many. However, there is a lack of clarity surrounding the process of acquiring annuities, causing potential buyers to hesitate.

Overcoming Logistical Impediments

The findings suggest that buyers encounter various obstacles when navigating the annuity market. These challenges can include a lack of accessibility, limited knowledge about available options, and difficulties in the purchasing process itself. As a result, individuals who express interest in annuities often struggle to find ways to proceed.

In order to address this issue, industry professionals and providers must focus on simplifying the buying process, enhancing accessibility, and improving educational resources for potential buyers. By doing so, more individuals will be able to overcome the logistical impediments and confidently embark on their annuity investment journey.

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