This paper describes how differences in health status at retirement can influence the
decision to purchase a life annuity. We extend previous research on annuitization
decisions by incorporating the effect of health differentials via differences in survival
throughout the latter portion of life. Next, we consider how precautionary savings
motivated by uncertain out-of-pocket medical expenses influence annuitization decisions.
Our results show that annuities become less attractive to people facing uncertain medical
expenses. While full annuitization would still be optimal if annuity markets were truly
complete and both life- and health-contingent, lacking this, annuity equivalent wealth
values are much lower for those in poor health, as compared to persons in good health.