Annuitized Wealth and Consumption at Older Ages
AbstractThe growing popularity of Individual Retirement Accounts (IRAs) and defined contribution (DC) pension plans, which generally provide benefits in the form of lump sum payments instead of annuities, is likely to affect spending patterns at older ages. People who enter retirement with little of their wealth annuitized run the risk of spending too quickly and depleting their assets before they die. Or they might spend too slowly, out of fear of running out of money, and not enjoy as comfortable a retirement as they could afford. This study uses data from the Health and Retirement Study (HRS), including a recent supplemental expenditure survey, to examine how household expenditures among adults ages 65 and older vary by the degree of annuitization—where annuities include Social Security benefits, pensions and private annuity contracts, and Supplemental Security Income (SSI) benefits. Results indicate that typical older married adults hold 55 percent of their retirement wealth in annuitized assets, and unmarried adults have 59 percent of their wealth annuitized. Older adults with little annuitized wealth spend more, even controlling for demographics, income, and wealth. If all defined benefit pensions (DB) were converted into unannuitized DC retirement accounts, discretionary spending could increase by as much as 3 percent for married adults and 11 percent for unmarried adults. By comparison, if Social Security was completely privatized, and retirees did not annuitize, discretionary spending could increase by as much as 22 percent for married adults and 38 percent for unmarried adults.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2006-26.
Length: 34 pages
Date of creation: Dec 2006
Date of revision: Dec 2006
Contact details of provider:
Postal: Hovey House, 140 Commonwealth Avenue, Chestnut Hill, MA 02467
Phone: (617) 552-1762
Fax: (617) 552-0191
Web page: http://crr.bc.edu/
More information through EDIRC
annuitized wealth; consumption; older age; IRAs; DCs;
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Hurd & Susann Rohwedder, 2006.
"Some Answers to The Retirement-Consumption Puzzle,"
342, RAND Corporation Publications Department.
- James Banks & Richard Blundell & Sarah Tanner, 1995.
"Is there a retirement-savings puzzle?,"
IFS Working Papers
W95/04, Institute for Fiscal Studies.
- James F. Moore & Olivia S. Mitchell, 1997. "Projected Retirement Wealth and Savings Adequacy in the Health and Retirement Study," NBER Working Papers 6240, National Bureau of Economic Research, Inc.
- Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, .
"New Evidence on the Money's Worth of Individual Annuities,"
Pension Research Council Working Papers
97-9, Wharton School Pension Research Council, University of Pennsylvania.
- Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December.
- Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, 2000. "New Evidence on the Money's Worth of Individual Annuities," NBER Working Papers 6002, National Bureau of Economic Research, Inc.
- John Ameriks & Andrew Caplin & John Leahy, 2002.
"Retirement Consumption: Insights from a Survey,"
NBER Working Papers
8735, National Bureau of Economic Research, Inc.
- Jeffrey R. Brown & James M. Poterba, 1999. "Joint Life Annuities and Annuity Demand by Married Couples," NBER Working Papers 7199, National Bureau of Economic Research, Inc.
- Irena Dushi & Anthony Webb, 2004. "Annuitization: Keeping Your Options Open," Working Papers, Center for Retirement Research at Boston College wp2004-4, Center for Retirement Research, revised Mar 2004.
- Hurd, Michael & Panis, Constantijn, 2006. "The choice to cash out pension rights at job change or retirement," Journal of Public Economics, Elsevier, vol. 90(12), pages 2213-2227, December.
- Barbara A. Butrica & Richard W. Johnson & Joshua H. Goldwyn, 2005. "Understanding Expenditure Patterns in Retirement," Working Papers, Center for Retirement Research at Boston College wp2005-3, Center for Retirement Research, revised Jan 2005.
- James Poterba & Steven Venti & David Wise, 2011.
"The Composition and Drawdown of Wealth in Retirement,"
Journal of Economic Perspectives,
American Economic Association, vol. 25(4), pages 95-118, Fall.
- James M. Poterba & Steven F. Venti & David A. Wise, 2011. "The Composition and Draw-down of Wealth in Retirement," NBER Working Papers 17536, National Bureau of Economic Research, Inc.
- Roozbeh Hosseini, 2008. "Adverse Selection in the Annuity Market and the Role for Social Security," 2008 Meeting Papers 264, Society for Economic Dynamics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Grzybowski) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.