What Makes a Better Annuity?

P>Given costly and limited annuity products, we investigate how annuity market innovation could improve participation and increase individual welfare. We find that participation gains are most likely with new annuity products that concentrate on late-life payouts. Our welfare analysis suggests that annuity innovation should focus on adding survival contingencies to assets commonly held by individuals. Finally, in a complete market setting, we find demand only for those annuity contracts with a significant time gap between purchase and payout (a rarity in current contracts). Overall, our analysis indicates ample opportunity for innovation to spur annuity demand and improve individual welfare.