The Center for Retirement Research at Boston College's new special report about longevity starts with a simple fact: Over the past century, life expectancy has increased significantly around the world. In the United States, on average, a man alive at 65 is now expected to live an additional 17.5 years, while a woman is expected to live 21 more years. Beyond the gender averages, the research shows, life expectancy varies significantly by economic status, health state and marital status — meaning that some groups have enjoyed even more impressive longevity growth. As the CRR analysis notes, the major longevity increase has coincided with broad economic and policy changes that have underscored the need for more efficient, individualized retirement planning. In the past two decades, in particular, workers have come to recognize that they need to account for the possibility of living longer and exhausting their private assets as a result. According to CRR researchers and report authors Karolos Arapakis and Gal Wettstein, this state of affairs would lead a traditional economist to presume that guaranteed income annuities would represent a key part of the typical Americans' approach to saving and spending in retirement. The products seem to solve for the exact problem that many older Americans are worried about the most. However, while annuities are popular among some client segments and seem to be enjoying growing attention in the financial planning community, the demand for private annuities that guarantee lifetime income is much lower than predicted by economic theory. One section of the new paper digs into this apparent contradiction, suggesting there is a long list of both rational and irrational reasons why some swaths of the American public continue to shun annuities, despite a professed interest in "income protection" during retirement. While people will continue to have valid reasons for doing so, the CRR researchers suggest, clearing up some of these genuine misconceptions could help some clients better understand the risks and opportunities they actually face. See the accompanying slideshow for a review of reasons Americans avoid annuities that are irrational, according to the researchers.
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