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

Author

Listed:
  • Robert L. Clark
  • Robert G. Hammond
  • Melinda S. Morrill
  • David Vanderweide

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.

Suggested Citation

  • Robert L. Clark & Robert G. Hammond & Melinda S. Morrill & David Vanderweide, 2017. "Annuity Options in Public Pension Plans: The Curious Case of Social Security Leveling," NBER Working Papers 23262, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23262
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    References listed on IDEAS

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    1. Brown, Jeffrey R., 2001. "Private pensions, mortality risk, and the decision to annuitize," Journal of Public Economics, Elsevier, vol. 82(1), pages 29-62, October.
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    8. Gila Bronshtein & Jason Scott & John B. Shoven & Sita N. Slavov, 2016. "Leaving Big Money on the Table: Arbitrage Opportunities in Delaying Social Security," NBER Working Papers 22853, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Gila Bronshtein & Jason Scott & John B. Shoven & Sita N. Slavov, 2016. "Leaving Big Money on the Table: Arbitrage Opportunities in Delaying Social Security," NBER Working Papers 22853, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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