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

59 Pages Posted: 20 Mar 2017 Last revised: 27 Mar 2017

See all articles by Robert L. Clark

Robert L. Clark

North Carolina State University - Poole College of Management

Robert G. Hammond

North Carolina State University

Melinda Sandler Morrill

North Carolina State University - Department of Economics

David Vanderweide

North Carolina General Assembly - Fiscal Research Division

Date Written: March 2017

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

Clark, Robert L. and Hammond, Robert G. and Morrill, Melinda Sandler and Vanderweide, David, Annuity Options in Public Pension Plans: The Curious Case of Social Security Leveling (March 2017). NBER Working Paper No. w23262. Available at SSRN: https://ssrn.com/abstract=2937552

Robert L. Clark (Contact Author)

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States
919-515-5560 (Phone)
919-515-5564 (Fax)

Robert G. Hammond

North Carolina State University ( email )

Raleigh, NC 27695-8110
United States

HOME PAGE: http://www4.ncsu.edu/~rghammon/

Melinda Sandler Morrill

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States
9195150331 (Phone)

HOME PAGE: http://www4.ncsu.edu/~msmorril

David Vanderweide

North Carolina General Assembly - Fiscal Research Division ( email )

301 N Salisbury St.
Raleigh, NC 27601
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
4
Abstract Views
169
PlumX Metrics