Is One Plus One Always Two? Insuring Longevity Risk While Having Multiple Savings Accounts.

This article investigates how holding multiple retirement savings accounts influences retirees’ payout decisions, particularly the choice between annuitizing funds or cashing them out as lump sums. Using proprietary data from a major Israeli insurance company covering 15,293 retirees, the study finds that smaller pension accounts are significantly more likely to be cashed out rather than annuitized. By employing occupation as a proxy for income (and thus wealth), the authors show that individuals with high expected wages tend to annuitize more overall but are less likely to annuitize their small accounts, suggesting a diversification effect beyond pure income considerations. Complementary laboratory and large-scale online experiments confirm that the presence of multiple accounts, especially when one is small, reduces the likelihood of annuitization for the smaller accounts, a pattern not observed among financial experts, indicating the role of financial literacy and mental accounting. These findings have implications for retirement planning, financial institutions’ asset-liability management, and policy design aimed at improving annuitization rates.