Insight: LUMP SUMS VS. ANNUITIES: DIFFERENT EFFECTS ON SAVING INTENTIONS
By Emerson Sprick
Insight Overview
IDEAS IN THE INSIGHT YOU CAN PUT INTO ACTION
Research findings by Daniel Goldstein, Hal E. Hershfield, and Shlomo Benartzi suggest that pre-retirees are better able to imagine their projected wealth in retirement when those projections are presented as lifetime monthly income rather than as lump sums. Among pre-retirees with less than $1 million in projected retirement wealth, those who think of their retirement wealth as a monthly income are more likely to save at a higher rate than are pre-retirees who consider their wealth only as a lump sum. The reason for this difference is likely that pre-retirees can more easily compare projected monthly income to their current budget, especially with regard to expenses billed monthly, such as rent or mortgage payments, car payments, and utilities. As a result of these findings, the authors suggest that financial professionals and retirement plan providers should focus on monthly income projections more than on lump-sum projections when consulting with pre-retirees.
Read the Full Insight
About the Author
Emerson Sprick is a policy analyst at the Bipartisan Policy Center in Washington, DC. He earned a master’s degree in economics from Georgetown University and a bachelor’s degree from the University of Missouri.