Annuitized Wealth and Consumption at Older Ages
The 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.
|Date of creation:||Dec 2006|
|Date of revision:||Dec 2006|
|Contact details of provider:|| Postal: |
Phone: (617) 552-1762
Fax: (617) 552-0191
Web page: http://crr.bc.edu/Email:
More information through EDIRC
References listed on IDEAS
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.:
- John Ameriks & Andrew Caplin & John Leahy, 2002.
"Retirement Consumption: Insights from a Survey,"
NBER Working Papers
8735, National Bureau of Economic Research, Inc.
- Burman, Leonard E. & Coe, Norma B. & Gale, William G., 1999. "Lump Sum Distributions from Pension Plans: Recent Evidence and Issues for Policy and Research," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 553-62, September.
- 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.
- Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, 1997.
"New Evidence on the Money's Worth of Individual Annuities,"
NBER Working Papers
6002, National Bureau of Economic Research, Inc.
- 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, . "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.
- Michael D. Hurd & Susann Rohwedder, 2006.
"Some Answers to the Retirement-Consumption Puzzle,"
NBER Working Papers
12057, National Bureau of Economic Research, Inc.
- Banks, James & Blundell, Richard & Tanner, Sarah, 1998.
"Is There a Retirement-Savings Puzzle?,"
American Economic Review,
American Economic Association, vol. 88(4), pages 769-88, September.
- 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.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:crr:crrwps:wp2006-26. See general information about how to correct material in RePEc.
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.