Annuities and Retirement Satisfaction

This paper analyzes pre-retirement expectations and post-retirement satisfaction, in particular their association with the degree to which retirees' financial resources are in the form of annuities. Using the 1992-2000 Health and Retirement Study (HRS), the author finds 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 constant the present value of retirement resources and other factors, the author finds that retirees who can finance more of their consumption in retirement from pension annuities (vs. Social Security benefits and accumulated savings) are more satisfied. Retires with lifelong annuities also tend to maintain their level of satisfaction during retirement, whereas those without tend to become less satisfied over time. The author finds the very same patterns with alternative depression-related measures of well-being in retirement. The findings have important implications for the well-being of future American retirees, who are increasingly reliant on DC pension plans rather than the traditional DB pensions.