Do Individuals Accept Fluctuations in Pension Income?

How to invest and decumulate wealth during retirement has far-reaching consequences for consumption during retirement. We conduct an online experiment in Germany with the objective of understanding preferences for investment and asset decumulation. We investigate the choice between different phased withdrawal plans with varying riskiness resulting in potentially volatile retirement income. We find that 40% of the participants choose some risk and thus, accept fluctuations in retirement income. We analyze the choice between the selected withdrawal plan and a lifelong annuity. Overall, 56% of the respondents choose a life-long annuity. Preferences for an annuity are slightly stronger among individuals who chose the risk-free and medium-risk withdrawal plans as compared to the risky plan. Anchoring and fluctuation frames have small and significant effects on plan choice.

Bucher-Koenen, Tabea, Caroline Knebel-Seitz and Martin Weber (2023), Do Individuals Accept Fluctuations in Pension Income?, ZEW Discussion Paper No. 23-019, Mannheim.