Annuities and Retirement Satisfaction

Constantijn (Stan) Panis, RAND

This paper uses a large-scale nationwide panel survey of the elderly to document how Americans experience retirement. We find that most retirees are very satisfied with their overall situation, but the degree of satisfaction varies substantially with retirees’ characteristics. In particular, people in better health and with more financial resources tend to be more satisfied. Holding financial resources and other factors constant, we find that retirees who can pay for more of their retirement expenses from lifelong guaranteed pensions (vs. accumulated savings) are more satisfied. Retirees with lifelong annuities also tend to maintain their level of satisfaction during retirement, whereas those without tend to become less satisfied over time. The findings have important implications for the wellbeing of future retirees, who are increasingly reliant on defined contribution pension plans rather than traditional lifelong pensions.