Research: Thoughts of death hamper annuity purchases

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Gergana Nenkov, Ph.D., left, and Linda Court Salisbury, Ph.D.
Gergana Nenkov, Ph.D., left, and Linda Court Salisbury, Ph.D.

New research by two Boston College marketing professors provides something to ponder as senior living industry leaders, policymakers and others propose new ways to finance long-term care. They found that one reason people may hesitate to buy annuities is that they don't want to think about death. Their lack of action, of course, means that people run the risk of outliving their income.

“When you think about an annuity, you have to think about how long you have left to live, how many years you need to finance,” said Gergana Nenkov, Ph.D., an associate professor of marketing with the Carroll School of Management at Boston College and co-author of the study, which is in press for the Journal of Consumer Psychology. “You have to think about dying. That's part of the annuity process, and when people do that, it turns them away."

Demand for annuities is much lower than it economists think it should be, according to Linda Court Salisbury, Ph.D., also an associate professor of marketing and co-author of the study. “They have been trying to figure out this annuity puzzle. Why won't people do it when they should see that it's good for them?”

Low retirement savings, unfair pricing and the resulting decreased flexibility in accessing one's money have been thought to be culprits, but Salisbury and Nenkov offer another reason: the more people think about death, the less they want to prepare for it. Four studies that included a total of 748 adults support their hypothesis.

One study asked participants whether they would rather roll their retirement savings into an individual retirement account or purchase an annuity. “When people considered an IRA, very few thought about dying or how long they have left to live,” Nenkov said. “But when the people considered an annuity, a big proportion of them had those kinds of thoughts related to death.”

Two other studies presented participants with annuity descriptions that contained subtle differences. One description indicated that the annuity “guaranteed payments for as long as you live,” whereas another “guaranteed payments for as long as you live until you die.” The researchers found that whenever a description mentioned death, interest plummeted.

Marketers and policymakers will need to find ways to de-emphasize death or help consumers deal with the anxiety triggered by thinking about death if they want to increase interest in these products, Salisbury and Nenkov said. Their findings have implications for other late-life decisions that are being avoided, too.

“Wills, life insurance, estate planning — all of those decisions are sometimes put off, and we think this issue of not wanting to think about death has a role,” Nenkov said. “Maybe finding ways to deal with that anxiety could help consumers overcome it and make the important decisions, because if they don't, there are devastating consequences later in life.”

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