Bequest Expectations and Annuity Ownership

Ying Yan10

Russell N. James III11

Abstract

This paper uses data from the 9 waves of the Health and Retirement Study (HRS) to examine how bequest expectations impact decisions about annuitization. The estimations of a random-effects model show that people who have a higher expectation of leaving a bequest are more likely to have an annuity, even controlling for housing wealth, non-housing wealth, health, and other demographic characteristics. Previous studies have shown a negative association between bequest motivation and annuitization. The differing relationship of annuitization with bequest motives and bequest expectations reveals a practically and theoretically important distinction between these two types of bequest measurements. The implications of other research findings that use bequest expectations as a proxy for bequest motive may need to be reconsidered.

Key Words: Annuities, Estate Planning, Bequest Expectation, Bequest Motive

Introduction

In his 1985 Nobel Prize acceptance speech Franco Modigliani introduced the “annuitization puzzle” that few people annuitize a portion or all of their wealth. The “annuitization puzzle” is not only a “puzzle” in the United States, but it is also a “puzzle” across many developed countries.

Longevity risk is the risk that a person lives longer than expected and has insufficient wealth to support his or her lifestyle. Retirees in the United States face a significant longevity risk in part because of increasing life expectancy (Knell, 2018). The average life expectancy is expected to increase (Le Bourg, 2012). Therefore, retirees should be increasingly concerned about the need to hedge against longevity risk.

An annuity, also known as longevity insurance, is a financial product typically used by investors to generate regular income payments for life, helping to replace a paycheck in retirement. Often, investing in annuities is an optimal asset management strategy for retirees (Finke & Pfau, 2015; Pfau, 2012; Kitces & Pfau, 2014). The economic literature provides theoretical and empirical evidence that life annuities bring substantial welfare improvements to retirees (Fehr & Habermann; Davidoff et al., 2005). However, the annuitization rate is low in the United States. For example, among those 65 and older private annuities comprise roughly than 1 percent of total wealth (Johnson, Burman, & Kobes, 2004) with only about three to five percent having any annuities (Lockwood, 2018).

Many have tried to explain the reasons that cause the “annuitization puzzle.” A popular explanation is people desire to leave a bequest. Because standard annuity payments end at the death of annuity owner, they are not bequeathable. This feature has the potential to decrease or even eliminate the desire for annuitization. Several studies show that having a bequest motivation (a desire to leave a bequest) could prevent purchase of annuities because annuity wealth is not bequeathable (Yaari, 1965; Bernheim, 1991; Bütler & Teppa, 2007).

However, bequest motivation is difficult to measure. Generally, researchers have used children or the self-reported importance of leaving a bequest as proxies to measure such motives. Commonly, they do find a negative association between purchasing a life annuity and these bequest motive measurements (Yaari, 1965; Bernheim, 1991; Bütler & Teppa, 2007). Outside of an annuity context, others have used the bequest expectations measurements found in the Health and

Retirement Study as a proxy for bequest motive (Kim et al., 2012; Willis, 1999; Yilmazer & Scharff, 2014).

This paper uses data from the 2002 through 2018 Health and Retirement Study (HRS) to examine how bequest expectations impact decisions about annuitization. The estimations of a random-effects model show that people who have a higher expectation of leaving a bequest are more likely to have an annuity, even when controlling for housing wealth, nonhousing wealth, and other health and demographic variables. This paper uses a new measurement related to bequests (i.e., expectations), and finds an opposite association with this measurement as compared to prior studies using other proxies for bequest motives (Yaari, 1965; Bernheim, 1991; Bütler & Teppa, 2007). The implications of other research findings that use bequest expectations as a proxy for bequest motive may need to be reconsidered.

Literature Review

Retirees in the United States face significant longevity risk. About 20 percentage of 65-year people will live to age 90 and beyond (Lockwood, 2018). Annuities, which convert wealth into a lifetime income stream, can insure people against this longevity risk. Therefore, life annuities appear to be a potentially valuable part of retirees’ portfolios. However, the annuitization rate is low in the United States (Peijnenburg, et al., 2016). One possible reason that people do not hold annuities is that people have bequest motives which could eliminate the purchase of annuities.

This may be, in part, because an annuity is not bequeathable wealth (Lockwood, 2018). Many people report that the most important reason for their saving is to leave a bequest (Lockwood, 2018). Yaari (1965) points out that in a life-cycle framework, consumers could maximize their utility by holding only annuity wealth if they do not care about bequest (i.e., they do not have any bequest motive). However, when they have a bequest motive, they could hold a portfolio which combines annuity wealth and other bequeathable wealth to maximize the marginal utility of bequests and consumptions (Yaari, 1965). Nevertheless, many retirees do not use annuities at all, but instead chose to self-insure (Lockwood, 2012).

Bernheim (1991) confirms Yaari’s results and indicates that people who care about their bequest motives will convert a lower, or even zero, percentage of assets into annuities, even if annuities are available at actuarially fair rates. In addition,

Bütler and Teppa (2007) indicate that the presence of a bequest motivation will reduce or eliminate the demand for annuities, even when the return on them exceeds the real market interest rate. Davidoff (2009) suggests that the bequest motives can significantly reduce the demand for annuities, and can be viewed as a possible explanation for the low demand observed in the US annuity market. Purcal and Piggott (2008) also confirm that the bequest motive is the strongest single factor reducing the demand for annuities in the Japanese market.

The previous literature shows that bequest motives may explain why people are not willing to annuitize all of their wealth (because people want to leave a bequest), but cannot explain why people do not annuitize any of their wealth (Lockwood, 2012). Lockwood suggests that bequest motives would not prevent or eliminate the purchases of actuarially fair annuities, but it can reduce the demand for the annuities actually available in the market. Similar to other researchers, Lockwood (2012) also points out that bequest motives could reduce the demand for available annuities.

Thus, bequest motives are universally recognized as an important factor in the annuitization decision. However, bequest motives may be difficult to accurately identify. For example, the use of children as a proxy for bequest motives introduces other confounding factors. A previous study shows that many retirees use family as a form of self-insurance, which allows retirees to take advantage of the possibilities of joint consumption (VidalMeliá & Lejárraga-García, 2006). Sharing financial resources among the members of their family reduces the attractiveness of annuities, because it accomplishes risk sharing in a different way (Vidal-Meliá & Lejárraga-García, 2006). This feature of risk sharing makes family similar to an incomplete annuities market (Kotlikoff & Spivak, 1981). Bequest motives can thus become entangled with the valuation of annuities through this family support mechanism (Jousten, 2001).

Other factors may also impact the desire for annuitization. Holding excess wealth relative to income needs may obviate the need for the longevity protection provided by annuities (Pang & Warshawsky, 2009). However, this is diminished where that wealth is primarily held in a personal residence where the owners do not want to convert their housing wealth into annuities or reverse mortgages because of bequest or other motivations (Chiang & Tsia, 2016). Also, public and employer pension plans and concern over significant medical expenditure risk could explain why only a few people purchase the available annuities in the market.

Hypothesis

As mentioned, several studies conclude and confirm that bequest motives reduce or eliminate the demand for purchasing life annuities. Nevertheless, there appears to be no literature that considers the influence of bequest expectations on decisions for purchasing life annuities. This paper explores that issue. It measures bequest expectations as the respondent’s predicted percentage chance of leaving a bequest. It further delineates this by measuring the predicted percentage chance of leaving a bequest between $10K and $100K, between $100K and $500K, and more than $500K. Several studies using this measurement of bequest expectations have presented it as a proxy for bequest motivation (Kim et al., 2012; Willis, 1999; Yilmazer & Scharff, 2014). This approach may be incorrect. For example, a person could have zero motivation to leave a bequest, but still expect that – simply due to uncertainty regarding timing of death – such a bequest would be highly likely due to unconsumed wealth. Further, to the extent that one’s expected bequest increases, it would actually satisfy the underlying bequest motivation. This reduces the marginal utility from each additional dollar devoted to bequests. Thus, assuming stable underlying bequest preferences, at the margin higher bequest expectations should predict lower marginal bequest motivations. If this is the case then, controlling for wealth and longevity factors, the following hypothesis would hold.

Hypothesis: A higher bequest expectation will be associated with a higher propensity to use annuities.

Data And Variables

This paper uses RAND data including all waves from Wave 6 to Wave 14 (2002-2018) of the Health and Retirement Study (HRS). It includes data from nine total waves across sixteen years as the HRS is conducted every two years. The HRS is a panel study of Americans who are older than 50 years of age. To maintain this age representativeness, new younger panel members are added every six years.

The dependent variable in the following analysis is annuity ownership which is a dichotomous variable that equals to “1” if the respondent reports having an annuity and “0” otherwise. Explanatory variables including bequest expectations, number of children, marital status, self-perceptions of health, housing wealth, non-housing wealth, years of education, stock ownership, participation in a pension plan, and age.

There are three bequest expectation variables measuring the chances for leaving an inheritance of $10,000 or more, $100,000 or more, and $500,000 or more. When all three variables are included in the same regression, the coefficient for the first variable reflects the association with the percentage chance that respondents will leave a bequest between $10,000 and $100,000; the second reflects the association with the percentage chance that respondents will leave a bequest between $100,000 and $500,000; and the third reflects the association with the percentage chance that respondents will leave a bequest over $500,000. These are nominal amounts and do not change across the years in the study. However, these reflect the associations with the expectations of bequests at various relative levels in each year.

Number of children is a continuous variable which measures the actual number of children that respondents have. “Married” is a dichotomous variable which is equal to “1” if respondents are married or “0” otherwise.

Health is measured using the four dummy variables of excellent health, very good health, good health, and fair health with “poor health” being the omitted comparison category. Housing wealth and non-housing wealth are continuous variables scaled to $100,000 units. Life insurance ownership is a dichotomous variable equal to “1” if respondents have at least one life insurance policy or “0” otherwise. Years of education is a continuous variable which measures the actual years that respondents have of formal education. Stock ownership is dichotomous variable which equals “1” if respondents own stocks or “0” otherwise. Pension plan is a dichotomous variable which equals “1” if respondents have at least one pension plan or “0” otherwise. Lastly, age is a continuous variable which measures the actual age of respondents.

Table 1. Descriptive Statistics reporting means (standard errors)

Table 1 shows the descriptive statistics for the initial survey wave, Wave 6 (2002), and the final survey wave, Wave 14 (2018). Given the addition of new younger respondent waves in 2004, 2010, and 2016, and respondents lost due to death or dropping out of survey participation, only 58.61% of the households observed in the 2018 wave were also observed in 2002 wave. Most characteristics are roughly similar in these two waves although the effects of inflation may explain the increase wealth and bequest expectations over $500,000. Both participation in pension plans and stock ownership are notably lower in the 2018 wave.

Bequest expectations are expected to be associated positively with having an annuity. Again, this hypothesis is the opposite of that which would be made for a measurement of bequest motives, for the reasons described previously. The number of children is expected to be associated negatively with having an annuity. The theory of social interaction indicates that people care about their children’s utility, such as financial safety, happiness, and future development (Becker, 1974). Therefore, most people are willing to leave wealth to their heirs. However, annuity wealth is not bequeathable wealth. The theory could explain why people who have children are less likely to have an annuity. Additionally, people may have more expenditures, such as children’s educational costs and other expenses, when they have more children. Those expenditures and costs may result in financial constraints and leave relatively less wealth available for annuitization. Finally, the presence of children may serve as a substitute for longevity insurance resulting from family insurance and joint consumption (Vidal-Meliá & Lejárraga-García, 2006). (Some prefer to reserve the term longevity insurance for deferred annuity products; however the current data do not separate deferred and immediate annuity products (Ezra, 2016)).

Housing wealth and non-housing wealth are expected to be associated positively with purchasing an annuity. Greater wealth indicates a higher purchasing ability. The theory of consumer demand shows that people will consume more normal goods when they have larger wealth or other forms of discretionary income (Slacalek, 2009). However, people may treat housing wealth differently due to mental accounting, liquidity constraints, or the desire to avoid indebtedness necessary to access equity, thus warranting its separate examination.

Marriage could impact decisions about purchasing annuities. The theory of social interaction shows that people will care about their spouse’ utility (Becker, 1974). Joint and survivor annuities are available for married couples in the annuity market, and they provide lifetime benefits to the last surviving spouse. Married couples could purchase joint and survivorship annuities to have a lifetime financial protection for the surviving spouse (Brown & Poterba, 2000). Thus, married couples may be more likely to annuitize part or all of their wealth. However, Inkmann et al., (2011) indicate that married couples are significantly less likely to have an annuity compared to the single individuals and this is because of the intra-household hedging of longevity risk. Married couples could hedge the longevity risk through shared family resources instead of transferring the longevity risk to the capital market. Therefore, the relationship between being married and having an annuity remains ambiguous.

Additionally, a more positive health condition is expected to be associated positively with purchasing an annuity. Generally, heathier people will have a longer life expectancy than those in poorer health. People who have a longer life expectancy will receive more benefits from a life annuity. Also, people with a longer life expectancy will have larger need for hedging the longevity risk. Therefore, heathier people should be more likely to have an annuity.

Life insurance ownership is expected to be associated negatively with having an annuity. Life insurance involves a financial bet that a person will live shorter than expected while annuities involve a bet that a person will live longer than expected. However, life insurance and annuities could be considered complementary products for achieving risk reduction, because life insurance reduces the risk from premature death while an annuity reduces the risk from longevity.

There is an ambiguous association between years of education and annuity ownership. People who have more years of education may have better financial literacy (Sucuahi, 2013; Sekita, 2011; Lusardi et al., 2010; Lusardi & Mitchell, 2011). Thus, they may have a better understanding the value and appropriate use of annuities. This could result in a higher probability of having an annuity. However, when people have better financial literacy (Sucuahi, 2013; Sekita, 2011; Lusardi et al., 2010; Lusardi & Mitchell, 2011), they may select other higher return investment vehicles, such as stocks and mutual funds. In this scenario, they may be less likely to have an annuity.

Stock ownership is expected to be associated positively with having an annuity. Compared to the annuity market, the stock market has more volatility and higher risk. Thus, for people who invest in stocks, having an annuity could help offset income volatility in their retirement savings. Additionally, both stock ownership and annuity purchases are likely associated with financial sophistication. Therefore, people who have investments in stocks may have a higher probability of having an annuity.

Participating in a pension plan has an uncertain association with having an annuity. Dent & Sloss (1996) indicate that the major benefit of pension plan is the stable income stream.

Some employers allow selection of either a defined benefit or defined contribution account. In such cases, selecting a pension plan may reflect a preference for a stable income in the retirement period. However, in many cases participation in a pension plan is not a voluntary choice, either because it is not available or because opting out is not available. In either scenario, a pension plan may fulfill the desire to ensure a stable income for retirement planning, and thus reduce the need for a privately purchased annuity. Additionally, the low demand for private annuities could result from the public pension system which allows retirees to have hedged the longevity risk with annuities provided by the public pension system, such as Social Security (Brown, 2001; 2003).

Lastly, age is expected to be associated positively with having an annuity. Annuities typically pay for life. Thus, for one person, the probability of having an annuity cannot normally decrease with age. Simply put, once you have a life annuity, you always have a life annuity. Additionally, an annuity is a bet on one’s own longevity. Thus, those who expect to live longer are more likely to purchase an annuity. To the extent that such predictions are correct, the surviving population at each older age would include a larger share of annuity holders due to their relatively higher probability of surviving to that age.

Model And Results

This paper estimates the following random-effect model via maximum likelihood:

AO* = β1be(10k-100k) + β2be(100k-500k) + β3be(500k+) + βjDVj + e

AO = 1 if AO* > 0 (Have an annuity)

AO = 0 if AO* ≤ 0 (Do not have an annuity)

AO is the unobserved latent variable measuring the underlying demand for having an annuity. Bequest expectations are measured by the bequest percentage chance indicated by be. There are three different levels of expected bequests which are be(10k-100k), be(100k-500k) and be(500k+). The be(10k-100k) variable measures the percentage chance that a respondent will leave a bequest between $10K to $100K. The be(100k-500k) variable measures the percentage chance that a respondent will leave a bequest between $100K to $500K, and the be(500k+) variable measures the percentage chance that a respondent will leave a bequest more than $500K. The matrix DV contains demographic variables and includes number of children, housing wealth, non-housing wealth, marital status, life insurance ownership, self-perception of health, years of education, stock ownership, pension plan, and age. Marginal effects are calculated to measure the magnitude of the association with the observed variable (AO or Annuity Ownership). The error term (e) is assumed to follow a standard normal distribution.

Simple cross-sectional models, such as logit or probit, are not ideal for longitudinal datasets such as this one because they assume that observations are independent. However, this longitudinal dataset includes multiple observations from the same households across time and such observations are not independent. A random effects model allows for the incorporation of multiple waves of data while recognizing the interdependence of observations coming from the same households across time (Laird & Ware, 1982). The ability to observe such behavior over time provides a more complete picture of the underlying relationships as compared with simple cross-sectional approaches which can apply only to single year of data.

Table 2. Random-Effect Model Results Reporting Coefficients [Marginal Effects]

The key finding is that people who have the stronger (higher percentage chance) bequest expectation are more likely to have an annuity. This matches the hypothesis but could be explained by alternate pathways. One possible explanation is that purchasing annuities results in a higher bequest expectation given that annuities can be an effective and efficient way to hedge the longevity risk (Lin & Cox, 2005). When people live longer than expected, they might otherwise need to spend more of their wealth to support their lives which could potentially reduce their expected bequests. Having an annuity could provide a lifetime income stream for supporting daily expenses and consequently protect the bequest goals. Another factor explaining this result may be the development of combination annuity products with additional investment features that preserve or expand bequest benefits. At the beginning of annuity market, there was only one annuity option which was the single pure life annuity. With the developing annuity market, people have more choices such as a life annuity with a guaranteed minimum payment, an installment refund annuity, and a joint and survivor annuity. Annuities are now not only just for hedging the longevity risk, but also for making an investment. Such investment features could add to the annuity’s likelihood of, by itself, increasing bequest expectations.

Several other factors were associated with annuity ownership. For example, having a greater number of children leads to a decrease in the probability of having an annuity. This may be explained by the increase in other regular expenditures, increase in family risk sharing through joint consumption models, or increase in underlying bequest motives. This result also matches past research using children as a proxy for bequest motives.

* p<.05, ** p<.01, ***, p<.001

Table 2 shows the coefficients, marginal effects, and coefficient standard errors. For all bequest expectation variables -between $10K and $100K, $100K and $500K and more than $500K -- the marginal effects indicate that people who increase their expectations of leaving a bequest will also increase the likelihood that they will own an annuity. The marginal effects for bequest expectations at each of the three levels are statistically significant.

People who are married are more likely to have an annuity. This may result from the attraction to joint and survivor annuities where the lifetime benefits will continue until the death of the last survivor.

The results indicate that when compared with people who report being in the poor health level, people who report being in excellent health or good health are more likely to have an annuity. This is expected as purchasing an annuity is, in part, a bet that one will live a long time and thus will likely be less attractive to those who perceive themselves to be in poor health.

People who have higher non-housing wealth also have a higher likelihood of owning an annuity. When people have more wealth, they are more likely to be able to afford purchasing an annuity. People who have more years of education also have a higher probability of having an annuity. Such people are likely to have better financial literacy (Sucuahi, 2013; Sekita, 2011; Lusardi et al., 2010; Lusardi & Mitchell, 2011). Therefore, they may have a better understanding of the importance of annuities and a stable lifetime income stream in retirement.

People who own stocks have a higher probability of having an annuity. This may be because stock investments have more volatility and higher risk, and annuities may hedge against this volatility. Alternately, it may be because both financial products are relatively sophisticated and may be associated with an underlying understanding of and interest in complex financial investment strategies.

People who have pension plans have a higher probability of also having an annuity. People who select pension plans, where such a selection within or between employers is possible, likely prefer the stable income streams for retirement planning. Thus, they may be more likely to prefer an annuity, which also provides stable income for life.

Finally, older people have a higher probability of having an annuity, as expected by the lifetime nature of the product. Life insurance ownership is not statistically significantly related to annuity ownership.

For each variable Table 2 reports the marginal effects. This can be interpreted as the expected change in the likelihood of annuity ownership resulting from a one-unit increase in the associated variable. The marginal effects resulting from differences in bequest expectations are highly significant but are relatively small compared to the effects from major factors such as health, age, marital status, and number of children. Nevertheless, the importance of the main finding lies in the observation of a positive and highly significant relationship with bequest expectations in contrast to the negative and significant relationships found with bequest motive proxies from past research. The key insight is that bequest expectations appear not to be an appropriate proxy for bequest motivations, despite their usage as such in past research.

Conclusion

The major finding of this paper is that having a greater bequest expectation is associated positively with having an annuity. This is the opposite relationship found in previous research using measurements of bequest motivations. At least two explanations match with this result. One is that higher bequest expectations result in an increased desire to annuitize. The other is that annuitization results in increased bequest expectations.

The first matches with standard economic assumptions and with previous findings connecting bequest motivations with a decreased likelihood of annuitization. If expected bequests are subject to diminishing marginal utility then – given a stable underlying level of bequest preferences (a.k.a. motivation) – as the predicted expectation for leaving a bequest (and leaving a larger bequest) grows, then the marginal utility from each extra dollar of a bequest should fall. If annuitization is viewed as a way to protect against longevity risk, but at the cost of bequest transference, then this relatively lower marginal utility from each additional dollar of bequest transference should reduce the opportunity costs from annuitization. In other words, annuitization comes at the cost of bequests, but the higher bequest expectation reflects that this bequest desire may have otherwise already been largely fulfilled. Thus, higher bequest expectations could result in an increased demand for annuitization. This explanation, and these empirical results, suggest that using bequest expectations as a measurement of bequest motive, as has been done in previous research, is inappropriate.

The second explanation matches with a framing argument. In this explanation, the causation is reserved. Annuitization results in increased bequest expectations. The argument here is that annuitization protects against longevity risk. In the presence of other assets intended to be left as a bequest, annuitization can be viewed as protecting those assets against consumption due to excessive longevity (Yan & James, 2021). Thus, in the absence of (partial) annuitization, these assets might be completely exhausted due to living expenses incurred during an exceptionally long life. But annuitization protects those assets against such risks, thus helping to ensure their eventual transfer to the next generation.

A final explanation relates to the type of products offered in the modern annuity market. Currently, retirees have many options with respect to annuitization such as joint annuities and other survivor benefits, which could themselves generate guaranteed bequest benefits for others. Modern annuities provide flexibility regarding the methods of paying premiums, number of lives covered, waiting period for benefits to begin, and nature of payouts (Ezra, 2016; Finke & Pfau, 2015; Scott, 2015). Those flexibilities for investors would encourage retirees to annuitize their wealth and, in many cases, would also directly result in a guaranteed bequest transfer at death.

Given that both causal argument directions are consistent with the association found in this paper, future research may profitably explore each possibility separately. To explore the impact of the second argument based upon framing, it may be useful to conduct experiments that employ the proposed annuity framing argument to measure its impact on annuity decisions. Finally, it may be useful to reconsider the implications of previous findings that have used bequest expectations as a proxy for bequest motivations.

As a matter of practice, these results suggest the importance of simultaneously addressing both client bequest expectations and client bequest goals/motivations. If underlying bequest motivations are already sufficiently addressed by relatively high current bequest expectations, then this suggests no additional bequest enlargement is desirable. In such cases, financial plans emphasizing lifetime consumption, such as annuities, or charitable bequests would become more relevant. Conversely, if bequest expectations were low relative to underlying bequest goals/motivations, the emphasis on enlarging expected bequests would be an important financial objective. Focusing only on one piece, either bequest goals/ motives or bequest expectations, in the absence of the other could lead mistaken conclusions for the advisor.

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CE Exam for Members of the IARFC

Members of the IARFC can earn CE credit by reading the Journal of Personal Finance (JPF). Two hours of IARFC CE credit will be awarded to members who achieve a 70% or higher on this multiple choice quiz. Only one submission per IARFC member is allowed. Please read the articles in the JPF, and then take the quiz online. The questions are provided here for your reference. A link to register for the quiz (or for quizzes on prior JPF issues), is available on the JPF website (www.journalofpersonalfinance. com). Once you have registered, you will receive an email with a link to access the quiz. As of this printing, JPF Online CE quizzes cost $20 for each Volume, Issues 1 and 2.

1. Previous studies have shown a negative association between ___________ and annuitization.

A. Bequest motivation

B. Wealth

C. Childlessness

D. Income

2. Bequest motive is difficult to measure, what is a common proxy for bequest motivation that has been used in previous research studies?

A. Homeownership

B. Pension plan eligibility

C. Children

D. Race

3. Based on the key finding in "Bequest Expectations and Annuity Ownership," people who have a higher bequest expectation are:

A. More likely to have an annuity

B. Less likely to have an annuity

C. There is no association between the bequest expectations and annuity ownership.

D. This paper does not mention this association.

4. Many researchers have tried to explain the reasons that cause the “annuitization puzzle.” Which of the following is not a potential explanation?

A. The annuity market is not actuarially fair for many consumers.

B. Annuity wealth is not bequeathable and therefore may conflict with bequest goals.

C. Investors must choose to either annuitize all of their wealth or none of it.

D. Actual annuitization choices available to consumers are more limited than theoretical options described in economic models

5. Some researchers use bequest expectation as a proxy for bequest motive. The results from "Bequest Expectations and Annuity Ownership" suggest:

A. Bequest expectation is a good proxy for bequest motive.

B. Bequest expectation is not an appropriate proxy for bequest motive.

C. There is no association between bequest expectation and bequest motive.

D. The article does not mention this issue.

6. In the article “The Role of Financial Advisors in Shaping Investment Beliefs", the financial advisors’ influence is determined by:

A. Financial advisors’ experience

B. The importance level of advice from the client’s perspective

C. Clients’ experiences of the investment

D. Volatility of the stock market

7. Based on the ordered probit results, authors of "The Role of Financial Advisors in Shaping Investment Beliefs" found that:

A. The financial advisor’s (FA) influence is associated positively only with stock market Ups & Downs investment belief.

B. Instead of the volatility of stock market investment belief (Ups & Downs), the financial advisor’s influence is associated with personal experiences of investment belief.

C. For both investment beliefs (Ups & Downs and personal experiences), the financial advisor’s influence is associated positively with an “Extremely important” response.

D. The financial advisor’s (FA) influence has an opposite association for two different investment beliefs (stock market and personal experience).

8. For both investment beliefs (stock market ups & downs vs. personal experience), besides the financial advisor’s influence, _____was also associated with investment beliefs.

A. Investable assets

B. Educational attainment

C. Race/ethnicity

D. Gender

9. The formation of ________ is a paramount consideration when examining the connection between financial advisors’ investment beliefs and the interpersonal communication they engage in with clients.

A. Financial advisors’ investment beliefs

B. Client behavior

C. Crisis-driven equity event

D. New equity experience

10. The goal of "The Role of Financial Advisors in Shaping Investment Beliefs" is to:

A. Address the influence of financial advisors on clients’ investments, specifically, by estimating the correlation between utilizing a financial advisor and stock market participation

B. Illustrate how a financial advisor’s influence can affect the investment beliefs of clients.

C. Demonstrate how the investable assets are associated with clients’ investment beliefs.

D. Show how the money beliefs, such as money status and money worship beliefs, associated with clients’ investment beliefs.

11. According to the implication of “The Role of Financial Advisors in Shaping Investment Beliefs", this study highlighted that:

A. Given the clients had varying investing biases, experiences, educational attainment, etc., clients were more likely to invest based on personal experience.

B. Financial advisors should be aware of their own beliefs, attitudes, and behaviors.

C. Both financial advisors and clients should keep an eye on the volatility of equity market (Ups & Downs).

D. As the financial advisors will maximize client’s interest, it is important to follow financial advisor’ investment beliefs.

12. Investors who made investments decisions partially or completely with a broker or professional adviser’s help were more likely to expect future stock market returns to _________________________.

A. Beat historical averages

B. Align with historical averages

C. Be lower than historical averages

D. Having nothing to do with historical averages

13. Results showed that those who had some form of professional assistance when making financial decisions, were more likely to be ______________________ about future stock market performance.

A. Highly optimistic and highly pessimistic

B. Highly pessimistic and cautious-realistic

C. Pessimistic and realistic optimistic

D. Cautious-realistic and realistic-optimistic

14. The key implication from the study "Investment Advisor Use and Stock Market Return Expectations" is that working with a financial professional is associated with having a more _____________view of future stock market returns.

A. Neutral

B. Realistic

C. Pessimistic

D. Overly optimistic

15. In this study "Investment Advisor Use and Stock Market Return Expectations," cautious-realistic investors expected the approximate average annual return of the S&P 500 stock index to be __________over the next 10 years (without adjusting for inflation).

A. 0 – 4.9%

B. 5% – 9.9%

C. 10% – 14.9%

D. Over 14.9%

16. What percentage of the sample used in this study "Investment Advisor Use and Stock Market Return Expectations" were pessimistic about future returns of the stock market?

A. 19%

B. 26%

C. 33%

D. 52%

17. In relation to gender and retirement plan participation, which of the following statements is true?

A. Men and women equally contribute to retirement plans regardless of their salary levels.

B. Women are more likely to participate in retirement plans than men.

C. Men are more likely to participate in retirement plans than women.

D. Women have higher account balances in their plans versus men.

18. When planning for retirement, which one of the following approaches is more likely to enable an investor to reach their goals?

A. Being patient and understanding timelines is associated with achieving retirement goals.

B. Having a high sense of urgency and little patience is associated with achieving retirement goals.

C. Understanding the stock market fully and trading in and out of stocks based on trends is associated with achieving retirement goals.

D. Being patient and understanding market trends is associated with achieving retirement goals.

19. Previous research has shown educational achievement and retirement planning are associated in what way?

A. Individuals who major in business are better at retirement planning.

B. Individuals with no college education do not plan for retirement.

C. Individuals with higher levels of education participate more in retirement planning.

D. Educational achievement has so association with retirement planning.

20. According to previous research, some individuals view working with financial advisors as:

A. A service only needed if you do not understand investing.

B. Beneficial only if you do not have access to an employer-sponsored plan.

C. Only available to wealthy individuals.

D. A service only needed when you are ready to retire.