This January at the annual meeting of the Allied Social Science Associations, associate professor of finance John Chalmers was one of two to receive the prestigious TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security.
Chalmers and Jonathan Reuter, an assistant professor of finance at Boston College, were recognized for their paper, “How Do Retirees Value Life Annuities? Evidence from Public Employees,” which used administrative data from approximately 32,000 retirements between 1990 and 2002 in the Oregon Public Employees Retirement System (PERS) to study the demand for life annuity payments by a large sample of retirees.
The paper’s findings revealed that 85 percent of PERS retirees chose to receive all of their pension benefits as life annuity payments, challenging the idea that the demand for life annuities is inherently low. Chalmers and Reuter also found that:
- Retirees suffering from poor health are less inclined than healthier retirees to choose life annuities, suggesting a correlation between a person’s perceived longevity and investment choice
- Demand for life annuities does not correspond to the actuarial value of life annuity payments, suggesting that retirees lack the financial knowledge required to compare life annuities to lump sums
- Demand for life annuities is lower when stock market returns are higher, suggesting that some PERS retirees might overvalue the projected investment returns that a lump sum will generate.
“Chalmers and Reuter have made an important contribution to our understanding of how retirees make annuitization decisions,” said Stephanie Bell-Rose, TIAA-CREF senior managing director and head of the TIAA-CREF Institute. “Their work challenges conventional wisdom and provides actionable solutions for policymakers looking to enhance Americans’ retirement security.”
Chalmers, the college's Abbott Keller Distinguished Research Scholar, is the academic director of the college's Finance and Securities Analysis Center. His research interests include the study of taxes and transaction costs and their impact on security returns.