A new NBER working paper says low annuity uptake is less irrational than often assumed and argues that simpler products, clearer framing and policy changes could connect retirees to lifetime income.
Just 12% of Americans age 50-plus with at least $100,000 in savings have bought a traditional life annuity, even though two-thirds fear running out of money more than death.
The authors group the barriers into three buckets: real trade-offs over liquidity and bequests, a confusing market where simple income annuities sell about $15 billion versus $500 billion for more complex products, and behavioral resistance.
Research cited in the paper shows framing matters: annuity preference rose from 21% to more than 70% when the product was presented as insurance rather than an investment.
The paper points to workplace plans as the main fix, citing Vanguard and TIAA's 2025 move and modeling defaults that would direct up to 20% of a retiree's 401(k) above a threshold into lifetime income.
While the US automates complex 401(k) annuities, could a simple bond from Brazil be the better answer for retirement security?
Your 401(k) may soon default into an annuity. Is this a path to security or a trap for your savings?
Ensuring Lifetime Income: How the NBER’s 20% Default Annuity Allocation Could Transform 401(k) Retirement Plans
Overview
The NBER's June 2025 proposal responds to the shift from traditional pensions to 401(k)-style plans, which has left many Americans worried about retirement security. As the old model of guaranteed lifetime income fades, the industry now recognizes the need to focus not just on saving, but also on providing steady income in retirement. The NBER paper explores automatically allocating part of retirees’ 401(k) assets into annuities, aiming to offer a reliable income stream and reduce the risk of outliving savings. This approach addresses growing concerns about market volatility and the uncertain future of Social Security.