Abstract
This paper estimates a dynamic model of annuitisation in which individuals hold subjective survival beliefs that may differ from their actual mortality risk. I show that biased survival beliefs reduce annuitisation at retirement but generate additional annuity demand at older ages. Overall, individuals under-annuitise by 10.1% during retirement and delay the average age of annuitisation by 3.7 years relative to the objective benchmark. The average welfare loss resulting from biased survival beliefs is equivalent to 2.9% of retirement-age assets. About 31% of this loss is attributable to pessimism about survival, while the remaining 69% reflects misperceptions of how mortality risk increases with age. Counterfactual policy experiments suggest that subsidies for annuity purchases early in retirement financed by taxing later purchases would improve welfare.