Economic theory suggest that with uncertain longevity an individual's welfare (utility) can be increased by purchasing an annuity contract. Nevertheless, empirical observations show that only a very small percentage of the population own private annuities. As an explanation, the proposed study suggests that people have preference for liquidity. Since annuity is the most illiquid type of asset, old people avoid buying annuity to prepare for large unexpected expenditures (e.g. disability expenses). The consumer keeps an amount of non-annuatized wealth, which will go to his heirs if no emergency occurs, but will cover emergency costs if they do occur. The study will investigate the annuity purchase behavior of people in the retirement age using the Social Security Administration's Retirement History Study. Specifically, the related hypotheses that variables related to emergency type expenditures and that bequest motive affect annuity holding will be investigated. The proposed study may be categorized under the heading of older people and social institutions--family, household and in networks and economic institutions.
