Is One Plus One Always Two? Insuring Longevity Risk While Having Multiple Savings Accounts
Abstract
We investigate the consequences of holding multiple accounts for payout decisions at retirement. Using proprietary data of retirees’ annuitization decisions, we find that small accounts are more likely to be cashed out. We use occupation information as a proxy for wealth to disentangle income from the multiple-accounts effect. We show that individuals with high expected wages are more likely to annuitize overall but less likely to annuitize their small accounts (comparing to individuals with low wages). A laboratory experiment and an online experimental survey (with a large representative sample) suggest that the composition of multiple accounts affects the annuitization rates via the decisions regarding small versus large accounts.