The Transition from Defined Benefit to Defined Contribution Pensions: Does It Influence Elderly Poverty?

Boston College Center for Retirement Research Working Paper No. 2015-17

34 Pages Posted: 24 Jul 2015

See all articles by Natalia Orlova

Natalia Orlova

Boston College, Center for Retirement Research

Matthew S. Rutledge

Boston College, Center for Retirement Research

April Yanyuan Wu

Mathematica Policy Research, Inc.

Date Written: July 1, 2015

Abstract

The transition from defined benefit (DB) to defined contribution (DC) pension plans has left workers forced to make choices that may decrease their financial resources in retirement: taking lump-sum distributions before retirement that divert funds that could support consumption in retirement, not annuitizing DC benefits, or choosing a single-life annuity over a joint-and-survivor option so that their surviving spouses are left susceptible to income loss. This study examines pension coverage, lump-sum distributions, annuitization, and annuity life options among Health and Retirement Study households observed at ages 65-69 and 75-79 and relates these pension provisions to poverty incidence and the risk of falling into poverty at older ages. The results indicate that households with pensions that are annuitized with the joint-and-survivor life option and that do not take lump-sum distributions before age 55 are best able to avoid income and asset poverty. The results emphasize the importance of making DC plans operate more like DB plans, because the opportunities for these poor financial choices are likely only to grow given the reliance on DC plans as the sole source of employer pension income for future cohorts of retirees.

Suggested Citation

Orlova, Natalia and Rutledge, Matthew S. and Wu, April Yanyuan, The Transition from Defined Benefit to Defined Contribution Pensions: Does It Influence Elderly Poverty? (July 1, 2015). Boston College Center for Retirement Research Working Paper No. 2015-17. Available at SSRN: https://ssrn.com/abstract=2634699 or http://dx.doi.org/10.2139/ssrn.2634699

Natalia Orlova

Boston College, Center for Retirement Research ( email )

Boston, MA
United States

Matthew S. Rutledge (Contact Author)

Boston College, Center for Retirement Research ( email )

Boston, MA
United States

HOME PAGE: http://crr.bc.edu/researchers/matthew_s_rutledge.html

April Yanyuan Wu

Mathematica Policy Research, Inc. ( email )

P.O. Box 2393
Princeton, NJ 08543-2393
United States

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