Is One Plus One Always Two? Insuring Longevity Risk While Having Multiple Savings Accounts (Job Talk)

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In this paper, we investigate the possible consequences of having multiple savings accounts on pay out decisions at retirement. Our results contribute to the literature on individual annuitization decisions and the discussions about Asset, Liabilities and Reserves management of long-term savings providers. Our study is based on proprietary data comprising 15,293 Israeli retirees’ annuitization decisions during the years 2009–2013. We document a significant size effect of the accumulated funds on the decision to annuitize. We find that retirees with smaller accounts have a significantly higher propensity to cash out their accounts upon retirement (controlling for related variables). These findings may be driven either by specific characteristics and attitudes of individuals who save less, or by behavior arising from managing multiple accounts possibly related to mental accounting, or both. Our results were obtained using a unique identification strategy that regards occupation as an instrument variable, and are consistent with the mental accounting argument. Our data also reveals that large accounts are likely to be annuitized.  Hence, our findings also suggest that insurance companies may consider treating small and large accounts differently in their ALM strategies. We further conduct an internet survey experiment that confirms these empirical results, and suggests that the composition of the multiple accounts affect the annuitization rates of the total saving portfolio.