Social Security and Defined Benefit Pension Payout Choices: Evidence from a Survey of Retirees

36 Pages Posted: 13 Nov 2018

See all articles by Steve Nyce

Steve Nyce

Willis Towers Watson

Sylvester J. Schieber

Independent

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Sita Slavov

George Mason University - School of Policy, Government, and International Affairs

David A. Wise

National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: December 2015

Abstract

Delaying Social Security claiming is equivalent to buying an annuity, as individuals who delay forgo current benefits in exchange for higher monthly benefits in the future. Despite growing evidence that this annuity is offered on extremely generous terms, the majority of people claim well before age 70. In addition, many people offered a choice between a lump sum and annuity payout from their defined benefit pension choose the lump sum even though it is typically actuarially disadvantageous. We present new evidence, based on an original survey, on why people claim Social Security early, how satisfied they are ex post with their claiming decision, and how well they understood Social Security’s rules at the time of claiming. Our survey also provides insight into defined benefit payout choices by asking people about these choices as well as their motivations for choosing a lump sum over an annuity. We find that the most common reasons for claiming Social Security early are a need for cash, an assumption that claiming should occur upon stopping work, and a desire to invest the money and come out ahead. For defined benefit pensions, we find that less than half of individuals who were offered a choice chose the lump sum, and among individuals who chose the lump sum, a large number rolled the money into an IRA.

JEL Classification: D14, H55, J26

Suggested Citation

Nyce, Steve and Schieber, Sylvester J. and Shoven, John B. and Slavov, Sita and Wise, David A., Social Security and Defined Benefit Pension Payout Choices: Evidence from a Survey of Retirees (December 2015). Available at SSRN: https://ssrn.com/abstract=3283141 or http://dx.doi.org/10.2139/ssrn.3283141

Steve Nyce

Willis Towers Watson ( email )

875 Third Avenue
New York, NY 10022
United States

Sylvester J. Schieber

Independent ( email )

No Address Available

John B. Shoven

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-326-5377 (Phone)
650-328-4163 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sita Slavov (Contact Author)

George Mason University - School of Policy, Government, and International Affairs ( email )

Founders Hall
3351 Fairfax Dr.
Arlington, VA 22201
United States

David A. Wise

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS)

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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