Annuity Options in Public Pension Plans:The Curious Case of Social Security Leveling

TitleAnnuity Options in Public Pension Plans:The Curious Case of Social Security Leveling
Publication TypeReport
Year of Publication2017
AuthorsClark, R, Hammond, R, Morrill, M, Vanderweide, D
Series TitleNBER Working Paper Series
Document NumberNo. 23262
Date Published03/2017
InstitutionNational Bureau of Economic Research
CityCambridge, MA
KeywordsAnnuitization, Older Adults, Pensions, Social Security
Abstract

Social Security Leveling is an annuity option that allows participants to receive a level income before and after age 62. The retiree receives a larger pension benefit prior to age 62, but then the pension benefit is lowered at age 62 when the individual is expected to claim Social Security benefits. This option is not uncommon in public pension plans, yet little is known about how this option is used in practice and its impact on well-being in retirement. Our study uses a combination of administrative records and survey data from recent North Carolina public sector retirees. We find that one-third of all retirees selecting a single life annuity between 2009 and 2014 opted for Social Security Leveling. The evidence suggests that individuals are choosing this option in a way that is consistent with their stated preferences and a consumption smoothing motive. However, we also see higher rates of ex post “regret” in the annuity choice among those choosing the level income option.

URLhttp://www.nber.org/papers/w23262.pdf
DOI10.3386/w23262
Citation Key8970