"Annuities and Endogenous Longevity" with Borja Larrain and Alessandro Previtero 2024, draft upon request. Abstract

Annuities hedge against longevity risk. Do they also have a direct effect on longevity? We address this question by investigating the annuitization choices of about 65,000 deceased Chilean retirees. Retirees are less likely to choose an annuity following high stock market returns. Using the returns around retirement as an instrument for selecting an annuity, we document that annuities increase longevity by roughly three years. Using independent survey data from Chilean retirees, we confirm annuitants have better post-retirement health than non-annuitants.

Our results document a significant yet overlooked benefit of annuities, which has implications for designing retirement income solutions in defined contribution plans and for the pricing of annuities by insurance companies.