Numbers speak volumes. Roughly half of all American households will not have enough income to maintain their standard of living if they retire at 65, the age at which individuals can now receive Social Security in retirement. What could possibly be more difficult than figuring out how to save and budget for whatever amount of time you hope to spend in retirement? According to the authors of a forthcoming study, this difficulty is not the only reason most people do not do a good job of making decisions about this important life phase.

Most of us are too afraid to think about death, say the Boston College researchers who conducted the study, and this dread tempts us to avoid making necessary choices about how to manage our savings during retirement. This same anxiety impacts other post-retirement decisions as well, such as creating a will, buying life insurance, and estate planning, suggests co-authors Linda Salisbury, a professor of marketing, and Gergana Nenkov, associate professor of marketing. This panic impacts one product most of all, they say: the annuity.

“A desire to avoid thoughts of death contributes to the annuity puzzle,” Salisbury told Medical Daily.

Insurance

Lots of investment professionals would be happy to sing the praises of annuities (and sell you one), but as Eve Kaplan, a Forbes contributor, expresses it, whether this investment vehicle is good, bad, or ugly depends on both your personal circumstance and annuity type. It’s a somewhat complex insurance product, where you pay in a certain amount of money in order to receive a guaranteed payment in return. While that sounds wunderbar, there are fees involved and you might not be able to take your money out if you change your mind about it. Plus, an earlier-than-expected death would effectively mean you give your money to other people.

Whether or not they are a sound investment for everyone, Salisbury and Nenkov suggests annuities carry an additional burden.

“Economic theory argues that annuities are attractive as they reduce the risk of outliving one’s income, a critical concern given that a large number of consumers are expected to run out of money during retirement,” wrote the co-authors. “Yet very few individuals facing retirement choose to buy annuities with their retirement savings.”

This annuity puzzle is the focus of their investigation. Specifically, Salisbury and Nenkov theorize that thoughts of death taint annuity products and designed four linked experiments to prove it.

In their first study, the researchers presented 161 participants between the ages of 18 and 63 with a hypothetical scenario. Asking them to pretend to be 65 years old, the researchers asked half the group whether they would be interested in putting their make-believe savings into an Individual Retirement Account (IRA), while asking the other half whether they would like to place their hard earned dollars into an annuity. Given information about the respective investment products, participants discussed the thoughts that crossed their minds while making this decision. In the annuity group, 40 percent experienced death-related thoughts, compared to only 1 percent in the IRA group.

Next, working with 156 new participants, the research team asked participants in one group to write an essay about their death, while the second group wrote about a time they experienced dental pain. Following this exercise, both groups imagined themselves at age 65 and about to retire. Asked if they wanted to put their savings into an annuity, the death-writing group proved themselves 50 percent less likely to choose an annuity.

In a third experiment, the researchers altered the wording in annuity brochures to see if they might manipulate decisions. One brochure stated the monthly payouts would continue “each year until they died” while the other said the payouts would continue “each year they lived.” Here, a greater proportion of the 358 total participants opted for annuities when they read “each year they lived.” In a final experiment involving 73 adults, the team replicated the same findings in an in-person setting using brochures similar to those distributed by financial companies.

Following analysis of all four studies, the researchers found an increase in thoughts of death produced an 11.5 percent decline in rates of buying annuities.

“This research highlights the importance of de-emphasizing death or dying when promoting annuities,” concluded the researchers, adding many people may be avoiding annuities because purchasing one inevitably involves thinking about when we will die. Insightful, however a twin truth underlies the annuity puzzle: this complex product is simply not the right choice for many people.

Source: Salisbury L, Nenkov GY. Solving the annuity puzzle: The role of mortality salience in retirement savings decumulation decisions. Journal of Consumer Psychology. 2016.