people who buy annuities live longer than those that dont?

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arcticpineapplecorp.
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people who buy annuities live longer than those that dont?

Post by arcticpineapplecorp. » Fri May 02, 2014 10:09 pm

Just read Super Freakonomics by Steven Levitt and Stephen Dubner and was interested in the stat that says people who buy annuities tend to live longer than people who don't. The paragraph (on page 72 nook edition) says it's not because people who buy annuities are healthier to begin with, but rather that a steady payout for life "provides a little extra incentive to keep chugging along."

I'm not a fan of annuities other than the immediate, lowest cost type...but what do people think about this?
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Re: people who buy annuities live longer than those that don

Post by Spirit Rider » Fri May 02, 2014 11:13 pm

arcticpineapplecorp. wrote:Just read Super Freakonomics by Steven Levitt and Stephen Dubner and was interested in the stat that says people who buy annuities tend to live longer than people who don't. The paragraph (on page 72 nook edition) says it's not because people who buy annuities are healthier to begin with, but rather that a steady payout for life "provides a little extra incentive to keep chugging along."

I'm not a fan of annuities other than the immediate, lowest cost type...but what do people think about this?
Classic fundamental and epic fail with no proof of correlation between causation and effect. The bolded statement is nothing more than biased conjecture.

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Re: people who buy annuities live longer than those that don

Post by ralph124cf » Sat May 03, 2014 12:53 am

People with known fatal diseases, such as cancer, or congestive heart disease, are not likely to buy SPIAs. Annuity companies know this. People who expect to live a long time tend to buy annuities. They are right more often than not. The companies use different mortality charts for life insurance than for annuities. I don't think that the article meant to imply that the annuity made people live longer, but that people who are healthier and expected to live longer were more likely to buy annuities.

Ralph

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Re: people who buy annuities live longer than those that don

Post by Ketawa » Sat May 03, 2014 12:59 am

I agree with the above two posters. I haven't read Superfreakonomics, but at first glance this would be a classic case of selection bias.

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Re: people who buy annuities live longer than those that don

Post by Professor Emeritus » Sat May 03, 2014 1:08 am

I agree on selection bias. However given the number of people who have died and their relatives keep collecting social security there can be fraud in the data too. OTOH I had a case where the son of the person receiving a series of annuities did everything legally and medically possible to keep the old lady breathing since she was his only support and there was nothing to inherit.

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Re: people who buy annuities live longer than those that don

Post by hiddensee » Sat May 03, 2014 2:52 am

Seems like a weird conclusion to reach when adverse selection is a well-known insurance phenomenon. Was there any particular evidence for this?

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Re: people who buy annuities live longer than those that don

Post by SGM » Sat May 03, 2014 3:35 am

People self select when buying annuities. Females on the whole live longer than males. I wonder if more of the purchasers are female. I suspect there is something about getting a monthly check and not worrying about running out of money that improves a sense of well being. However, one cannot conclude that buying an annuity will increase longevity.

"We ought to be more concerned about sustaining income levels for life than configuring our retirement portfolios to hedge market risk" ...someone said. The important point is that an immediate income annuity(SPIA) can reduce your chance of outliving your money. I plan on getting a joint SPIA at ages 75 and 80, certainly no earlier than 70.

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Re: people who buy annuities live longer than those that don

Post by VictoriaF » Sat May 03, 2014 4:30 am

People can will themselves to live a little longer. For example, a terminally ill man may hold on to life so that he could attend his granddaughter's wedding. But I doubt that this will can persist for more than a few months without a strong and continuous reinforcement--which is not the case with annuities. After a while, an annuity becomes blended in one's mind with Social Security, pensions and other income streams. Why would one component of this stream be more significant than all others? Do people live longer so that they can collect Social Security longer? Which brings up a question:

Do people who delay Social Security until the age of 70 live longer than those who don't--controlling for the factors mentioned above, such as adverse selection?

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Re: people who buy annuities live longer than those that don

Post by Valuethinker » Sat May 03, 2014 4:54 am

arcticpineapplecorp. wrote:Just read Super Freakonomics by Steven Levitt and Stephen Dubner and was interested in the stat that says people who buy annuities tend to live longer than people who don't. The paragraph (on page 72 nook edition) says it's not because people who buy annuities are healthier to begin with, but rather that a steady payout for life "provides a little extra incentive to keep chugging along."

I'm not a fan of annuities other than the immediate, lowest cost type...but what do people think about this?
I'd have to read the whole context to see what they are talking about. Lots of questions emerge like 'how do we define health?'.

Superfreakonomics suffered (and the first one did not to the same extent) from an attempt to sensationalize 'contrarian' thinking without really engaging with the underlying intellectual debate. For example they made an obvious mistake with physics. This is a problem for almost any discipline that applies itself to the study of another discipline. (Economics and psychology, economics and law come to mind). You can get new insights, but you can also get ripe balderdash.

The selection bias in annuity buyers is so well known in actuarial science (and literally centuries old, I believe) that I find it hard to believe that annuitants don't live longer than the population as a whole. And the reason I would advance is the conventional one: they know they are likely to live longer than the average.

This, by the way, is also true of members of final salary/ DB pension schemes generally. Church of England (Anglican) parsons have the longest life expectancy of any retired group-- which is causing the Anglican church some serious financial issues.

Part of it is class based. Middle class people (and especially the sort of professionals who buy annuities) look after themselves better on average than the population as a whole.

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Re: people who buy annuities live longer than those that don

Post by LH » Sat May 03, 2014 7:12 am

arcticpineapplecorp. wrote:Just read Super Freakonomics by Steven Levitt and Stephen Dubner and was interested in the stat that says people who buy annuities tend to live longer than people who don't. The paragraph (on page 72 nook edition) says it's not because people who buy annuities are healthier to begin with, but rather that a steady payout for life "provides a little extra incentive to keep chugging along."

I'm not a fan of annuities other than the immediate, lowest cost type...but what do people think about this?
selection bias comes to mind.

If I know I am likely to die soon, do I buy an annuity? no.

If I am healthy, parents lived to 100. do I buy an annuity? yes.

I would guess they controlled for that.

I read about 20-100 pages of the original freakonomics, it just didn't seem to stack up to me. Real popular book though.

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Re: people who buy annuities live longer than those that don

Post by sunnyday » Sat May 03, 2014 7:22 am

Freakanomics ( the first book) is worth a read but super Freakanomics is all about shock value. It's like reading a tabloid to get the news.

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Re: people who buy annuities live longer than those that don

Post by grok87 » Sat May 03, 2014 7:27 am

Well you guys can make fun of the freakonomics guys all you want. But how about this quote from Jane Austen:

http://classiclit.about.com/od/sensesen ... Quotes.htm

"People always live forever when there is an annuity to be paid them."
- Sense and Sensibility, Ch. 2

Isn't there at least the possibility that having a steady stream of income reduces stress and helps prolongs life?
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: people who buy annuities live longer than those that don

Post by Ron » Sat May 03, 2014 7:36 am

grok87 wrote:Isn't there at least the possibility that having a steady stream of income reduces stress (snip...>
I can't speak for others, but in my case, it does.

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Re: people who buy annuities live longer than those that don

Post by gerrym51 » Sat May 03, 2014 7:39 am

grok87 wrote:Well you guys can make fun of the freakonomics guys all you want. But how about this quote from Jane Austen:

http://classiclit.about.com/od/sensesen ... Quotes.htm

"People always live forever when there is an annuity to be paid them."
- Sense and Sensibility, Ch. 2

Isn't there at least the possibility that having a steady stream of income reduces stress and helps prolongs life?

isn't SS a steady stream of income? :mrgreen:

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Re: people who buy annuities live longer than those that don

Post by The Wizard » Sat May 03, 2014 7:41 am

gerrym51 wrote:
grok87 wrote:Well you guys can make fun of the freakonomics guys all you want. But how about this quote from Jane Austen:

http://classiclit.about.com/od/sensesen ... Quotes.htm

"People always live forever when there is an annuity to be paid them."
- Sense and Sensibility, Ch. 2

Isn't there at least the possibility that having a steady stream of income reduces stress and helps prolongs life?

isn't SS a steady stream of income? :mrgreen:
Yes, but some of us have additional annuities that exceed the SS monthly amount. That reduces stress even further...
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Re: people who buy annuities live longer than those that don

Post by nisiprius » Sat May 03, 2014 7:45 am

I am very suspicious of the idea that you can motivate yourself to live longer. But it is very hard to disentangle cause and effect, because people are very aware of subtleties in their general state of health. How big was the effect? I'll bet it was small. And there are so many factors here that I wouldn't believe it without a controlled experiment, or at least a very convincingly paired population. Quite apart from semiconscious or intuitive knowledge of personal longevity factors, there are other selection effects. Someone who buys an annuity is someone who thinks ahead; is frugal because of having to save enough money to pay a huge lump sum; and the difference might not be a financial "incentive" but subtly improved ability to take care of ones' self because of having a secure income.

It seems like a real idiot-ideologue-economist's idea to suppose that financial incentive is a key longevity factor.

Of course not having read either the book or the study I'm jumping to conclusions on the basis of third-hand information.

There is anecdotal evidence of composers, academics, writers etc. living long enough to complete some monumental work, but again, one might be vaguely conscious of the approaching end of life and regulate the creative process accordingly. I suspect there is a statistical anomaly with respect to the number of composers who complete exactly nine symphonies, but some of that might be phony (artifacts of choices of what to count as a "symphony." When I grew up, Dvorak only had composed five symphonies, but, while dead, seems to have managed to compose another four!) And of course plenty of people do die with important work unfinished. I'm thinking of Libbie Henrietta Hyman, who decided to write a definitive textbook on invertebrate zoology, soon realized that one volume would not be enough to do it the way she wanted and expanded it to three, then the three became more... I'm not sure if there was a final planned number but she died with six or seven written but several more to come. It will be interesting to see how Donald Knuth does with his magnum opus, the not-yet-finished The Art of Computer Programming.
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Re: people who buy annuities live longer than those that don

Post by Ron » Sat May 03, 2014 7:48 am

The Wizard wrote:Yes, but some of us have additional annuities that exceed the SS monthly amount. That reduces stress even further...
Amen! :mrgreen:

While having an annuity (or several) may not increase my/wife's lifespans, it certainly took money out of the worry bucket for us. Of course, we still have a lot of "worry" in that bucket - not related to money :annoyed ... Money can only solve so much in life.

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Re: people who buy annuities live longer than those that don

Post by asterix0 » Sat May 03, 2014 9:34 am

It strikes me that a majority of the people commenting on the statement mention not having read the book in which it is made. :confused

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Re: people who buy annuities live longer than those that don

Post by grok87 » Sat May 03, 2014 9:37 am

Ron wrote:
The Wizard wrote:Yes, but some of us have additional annuities that exceed the SS monthly amount. That reduces stress even further...
Amen! :mrgreen:

While having an annuity (or several) may not increase my/wife's lifespans, it certainly took money out of the worry bucket for us. Of course, we still have a lot of "worry" in that bucket - not related to money :annoyed ... Money can only solve so much in life.

- Ron
..
Forrest Gump: Lieutenant Dan got me invested in some kind of fruit company. So then I got a call from him, saying we don't have to worry about money no more. And I said, that's good! One less thing
I expect when I am reitred the 3 big worries will be money, kids, and health.
And as with many things in life I expect the truly bad scenarios are when multiple things go wrong all at once-interaction effects, the "tail" scenarios.
So if there are 3 big worries then there are potentially 4 interaction effects.
Money-kids
Money-health
Kids-health
Money-kids-health

If we take the money worry out of the picture, the number of interaction effects drops from 4 to 1:
Kids-health.

So you have just reduced your tail risk by 75%!!

:)
Cheers,
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: people who buy annuities live longer than those that don

Post by VictoriaF » Sat May 03, 2014 9:39 am

nisiprius wrote:I am very suspicious of the idea that you can motivate yourself to live longer...
Nisi, You are making some really good points in this post. The first line (cited above) made me a bit defensive, but as I was reading the rest of the message I agreed with everything you wrote and I liked your examples.

But here is another way to look at it. I think it's pretty much proven that stress (of a negative kind) shortens one's life. Should not the opposite likely be true? The trick is to design some clever experiments that would settle this issue once and for all.

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Re: people who buy annuities live longer than those that don

Post by Fallible » Sat May 03, 2014 12:43 pm

arcticpineapplecorp. wrote:Just read Super Freakonomics by Steven Levitt and Stephen Dubner and was interested in the stat that says people who buy annuities tend to live longer than people who don't. The paragraph (on page 72 nook edition) says it's not because people who buy annuities are healthier to begin with, but rather that a steady payout for life "provides a little extra incentive to keep chugging along."...
The whole sentence begins, The evidence suggests that an annuity’s steady payout provides a little extra incentive to keep chugging along.”

Do they say what the evidence is, or where we go to get it?
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Re: people who buy annuities live longer than those that don

Post by Dale_G » Sat May 03, 2014 12:46 pm

http://www.bus.umich.edu/otpr/WP2001-3paper.pdf

This paper by Kopezuk & Slemrod of the University of Michigan deals with Death Elasticity in relation to changes in estate tax laws. No comments about that, but in the introduction the authors cite instances of non-pecuniary death elasticity.
Phillips and King (1988) report that,
among Jews, the number of deaths was lower than expected in the week before Passover
and higher than expected in the week after; the pattern was most pronounced in years
when the holiday fell on a weekend, when it is most likely to be celebrated by the largest
number of people. Phillips and Smith (1990) find that mortality among Chinese dips by
35.1% in the week before the Harvest Moon festival and peaks by the same amount in the
week after. Anson and Anson (1997) find a similar effect related to the timing of
Ramadan for Moslems living in Israel, and note that the effect was larger for women than
for men, reflecting their different roles in the celebration of the holy day rites. Phillips
and Feldman (1973) claim that the same phenomenon occurs around birthdays and
presidential elections, although Schulz and Bazerman (1980) argue that this analysis does
not withstand close scrutiny. The consensus of this literature is that death can be briefly
postponed until after the occurrence of a significant occasion.3
Dale
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Re: people who buy annuities live longer than those that don

Post by Fallible » Sat May 03, 2014 1:05 pm

grok87 wrote:Well you guys can make fun of the freakonomics guys all you want. But how about this quote from Jane Austen:

http://classiclit.about.com/od/sensesen ... Quotes.htm

"People always live forever when there is an annuity to be paid them."
- Sense and Sensibility, Ch. 2

Isn't there at least the possibility that having a steady stream of income reduces stress and helps prolongs life?
There may be that possibility, but as I read that "Freakonomics" graf, they've gone well beyond a possibility (and apparently no sources).

Also, I couldn't find my thousand-year-old copy of Austen's novel, but in case anyone's interested in the context of the quote, it's a fun read (annuity ref begins about the 20th graf): http://classiclit.about.com/library/bl- ... -sen-2.htm
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Re: people who buy annuities live longer than those that don

Post by Dandy » Sat May 03, 2014 3:05 pm

The main reason is that sick people, people with bad family health histories don't usually want to fork over vast sums to buy an annuity. Most annuities are sold not bought and it is a pretty tough sell to a sick person, one likely to have a short life due to family history or their own e.g. a life long smoker, a person who worked with asbestos etc to buy an annuity. It is hard enough to get healthy people to fork over money for an annuity.

That being said maybe there is less stress on people who have enough money to fork over a large lump sum for an annuity. Maybe they can afford better food, medicine and medical/dental care, join a gym etc - kind of hard to prove though?

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Re: people who buy annuities live longer than those that don

Post by LadyGeek » Sat May 03, 2014 3:34 pm

This thread has run its course and is locked (not personal nor actionable). See: A reminder that non-investing general comment threads are OT
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