The "annuity puzzle" refers to the phenomenon where many individuals, particularly those approaching retirement, do not purchase annuities despite the theoretical advantages of doing so. An annuity is a financial product that provides a stream of income, typically for the rest of a person’s life, in exchange for an initial lump sum payment. The puzzle arises from the observation that, according to economic theory, rational individuals should value the security and reduction in longevity risk that annuities offer (i.e.
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