Survey_KW_2019

Abstract

To investigate the wealth decumulation decision and to derive predictions about the design of phased withdrawal strategies, we conduct an online survey in cooperation with the newspaper Frankfurter Allgemeine Zeitung (FAZ). The survey was promoted to cover retirement decisionsand planning and was accessible through a link that was posted on their online portal on August 16, 2018. The survey and related material can be found in the Appendix. Overall, 3598 participants with an age ranging from 18 to 93 completed the survey. Participants answered hypothetical questions about different retirement products, their willingness to decumulate wealth in retirement, and rate how the payout structure of a hypothetical income drawdown offering should look like. Moreover, they answered questions about demographics and household characteristics, risk preferences, financial literacy, and numeracy. Preferences regarding the payout structure of phased withdrawal products were elicited in two different ways in a within-subject design, which will be described subsequently. In both elicitation strategies, product-based and self-reported, we ask respondents to rate the importance of four characteristics related to the shape of the stream of payouts. The first characteristic resembles participants’ attitude about the size of the payouts. The second characteristic is what we refer to as the variance in the payout stream. Many currently offered retirement products (e.g. most annuities) feature constant payout streams, which allow consumers to plan ahead with a given budget. Yet, from an economic perspective, there is no ex ante reason to primarily offer constant payouts, as fluctuating payouts can dynamically adjust to economic conditions. That is, in states of high returns, consumers can either increase consumption or increase savings (e.g. by capping the maximal withdrawal amount) to shift more consumption to states with adverse market conditions to keep the marginal utility of consumption constant. The third characteristic we assess is the uncertainty in the payout stream. As phased withdrawals can invest in equities, they are necessarily subject to capital market risks, which – depending on the payout policy – can lead to default risk. In our context, we use the term default risk to refer to the probability of depleting the capital stock before the end of the planning horizon. Finally, we also assess to what extent participants view wealth that is not consumed before they die as an inefficient way of allocating resources or as an opportunity to benefit future generations. In other words, the last characteristic resembles bequest motives.