PhotoWith the huge Baby Boom generation beginning to retire, you might expect the annuity business to be booming. After all, with one lump sum investment, a retiree can look forward to a steady stream of monthly income until they die.

But the annuity business isn't booming, and researchers at Boston College were called upon to try to figure out why. The researchers conclude that consumers avoid annuities for some of the same reasons they generally put retirement savings on the back burner: they associate it with death.

Don't want to go there

"People need to think about how long they expect to live in order to calculate the potential payout for an annuity," Linda Salisbury, a Boston College marketing professor and co-author of the study, said in a release. "Our goal was to understand how we can help people overcome their avoidance of annuity products."

To arrive at their conclusion, the researchers divided subjects into two groups, telling both that they were 65 years old and starting retirement. One group was told to think about putting money into an IRA and the other was told to think about putting money into an annuity.

Following the exercise, the participants were quizzed about the thoughts going through their mind. The researchers found 40% of the annuity group was thinking about death, while only 1% of the IRA group had those thoughts.

Follow up test

To further test the theory, the researchers then asked one group to write an essay about their own death and the other to write about dental pain they had experienced. Then, both groups got a sales pitch for annuities and were asked if they wanted to purchase one.

The group that had written about death was 50% less likely to show interest in an annuity.

Could the prospect of confronting one's own mortality really be the reason consumers shy away from annuities? If so, might it also explain why many Baby Boomers haven't done such a great job of planning for retirement?

Language influence

In a 2013 study, Keith Chen, of Yale University, offered another explanation. He found that cultures where there is the most saving for retirement speak languages where there is no grammatical distinction between the present and future.

“Empirically, I find that speakers of such languages save more, retire with more wealth, smoke less, practice safer sex, and are less obese,” he wrote. “This holds both across countries and within countries when comparing demographically similar native households.”

In English, he points out, the language makes a difference between the present and future. That leads, he says, to less future-oriented behavior, such as saving for retirement.

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