Why Don’t People Annuitize? The Role of
Advice Provided by Retirement Planning Software

Abstract

This article investigates the hypothesis that one of the reasons why people do not annuitize their 401(k) plans and IRA assets at retirement is that when they seek retirement planning advice they are not advised to do so. Increasingly, people are getting financial information and advice from the internet. This article examines the advice provided by a number of retirement planning software programs available for free on the internet. It constructs two scenarios, one where annuitizing would clearly be appropriate and one where it clearly would not be. It then uses these scenarios as input to the retirement planning programs to test the consistency of the advice the programs offer. The article’s main finding is that generally the programs do not advise people to annuitize. The two programs that do advise annuitizing offer that advice in both scenarios. Both of these programs were provided by major providers of annuities, suggesting the role of financial self-interest in the advice provided.