Reorienting Retirement Risk Management

This chapter examines workers' plans to take lump sum distributions versus life annuities from employer retirement plans. The analysis is based on before and after surveys of retirement eligible workers who attended employer-provided retirement planning seminars. We consider workers' planned distributional choices from both defined benefit and 401(k) plans. A minority of respondents plan to take the nondefault options, highlighting the importance of framing. Additionally, higher financial literacy is associated with lower rates of annuitization in both plans. We explore how participants change their planned distribution choices after attending seminars that enhance financial knowledge and understanding of retirement plans. Disciplines Disciplines Economics Comments Comments The published version of this Working Paper may be found in the 2011 publication: Financial Literacy: Implications for Retirement Security and the Financial Marketplace.

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Disengagement: A Partial Solution to the Annuity Puzzle

Bateman

Eckert

Geweke

et al. 2013

SSRN Journal

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This research studies whether individuals make choices consistent with expected utility maximization in allocating wealth between a lifetime annuity and a phased withdrawal account at retirement. The paper describes the construction and administration of a discrete choice experiment to 854 respondents approaching retirement. The experiment finds overall rates of inconsistency with the predictions of the standard CRRA utility model of roughly 50%, and variation in consistency rates depending on the characteristics of the respondents. Individuals with poor numeracy and with low engagement with the choice task, as measured by scores on a task-specific recall quiz, are more likely to increase allocations to the phased withdrawal as the risk of exhausting it increases. Individuals with higher scores on tests of financial capability and with knowledge of retirement income products are more likely to score high on the engagement measure, but capability and knowledge do not have independent effects on consistent choice rates. Results suggest that initiatives to improve specific product knowledge and to help individuals engage with decumulation decisions could be a partial solution to the annuity puzzle.

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Reorienting Retirement Risk Management

Cited by 3 publications

References 9 publications

The Evolution of Retirement Risk Management

The Evolution of Retirement Risk Management

Pension Plan Distributions: The Importance of Financial Literacy

Disengagement: A Partial Solution to the Annuity Puzzle

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