16.4. REASONS WHY SOME PEOPLE DON'T LIKE TO BUY IMMEDIATE ANNUITIES

In practice, the number of immediate annuities sold in the United States is quite small. People simply don't seem to want to buy them, whatever we and the economists may say about their value.

One reason is simply the way in which people look at them. They don't frame the question in terms of longevity swaps, but they do see the large lump sum they have to pay, and they compare it with the annual income they receive. It's not valid to compare a lump sum with an annual cash flow, but people do it anyway. There's an element here of what we called hyperbolic discounting in Chapter 10. We feel the cost immediately, but deeply discount the future benefit. Meir Statman eloquently recounts the regret of an annuity-purchasing friend, quoting him as saying, "Yesterday, I was a millionaire. Today, I'm living on $79,700 a year."^[]