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

Robert L. Clark, Robert Hammond, Melinda Morrill and David Vanderweide

No 23262, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H55 J26 J38 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-age, nep-ias and nep-lma
Note: AG
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Citations: View citations in EconPapers (6)

Published as Robert L. Clark & Robert G. Hammond & Melinda Sandler Morrill & David Vanderweide, 2018. "Annuity Options in Public Pension Plans:," The Journal of Retirement, vol 6(1), pages 33-44.

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