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Navigating complex financial decisions at retirement: evidence from annuity choices in public sector pensions

Published online by Cambridge University Press:  29 January 2019

Robert L. Clark ,
Robert G. Hammond  and
David Vanderweide
Robert L. Clark*
Affiliation:
North Carolina State University and NBER, Box 7229, Poole College of Management, Raleigh, North Carolina, USA
Robert G. Hammond
Affiliation:
North Carolina State University, Raleigh, North Carolina, USA
David Vanderweide
Affiliation:
Fiscal Research Division, North Carolina General Assembly, Raleigh, North Carolina, USA
*
*Corresponding author. E-mail: [email protected]
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Abstract

Choices regarding the disposition of wealth at retirement can have substantial implications for retirement income security. We analyze the factors determining annuity payout option choices within the context of a public sector defined pension plan with no default annuity option. Using combined administrative records and survey data, we explore the role of individual and household characteristics as well as risk preferences, time preferences, and financial literacy. We also document retiree well-being and satisfaction with retirement decision making. The evidence is consistent with predictions over which households might benefit most from each annuity option. Comparing retirees who chose different types of annuities, we find that these groups of retirees report very different levels of well-being in retirement. All retirees report lower levels of retirement income security over time, with strong differences among those who chose different types of annuities.

Keywords

Annuity choicesfinancial literacypublic employeespensionsG2H7H8
Type
Article
Information
Journal of Pension Economics & Finance , Volume 18 , Special Issue 4: Incentives and Limitations of Employment Policies on Retirement Transitions , October 2019 , pp. 594 - 611
Copyright
Copyright © Cambridge University Press 2019 

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