1. Social Security and Defined Benefit Pension Payout Choices: Evidence from a Survey of Retirees Steven Nyce, Towers Watson Sylvester Schieber, Towers Watson John Shoven, Stanford University and NBER Sita Slavov, George Mason University and NBER David Wise, Harvard University and NBER SIEPR Conference on Working Longer and Retirement October 9, 2015

2. Motivation What is the best way to draw down on retirement assets? Social Security: – Delaying Social Security is equivalent to purchasing annuity. – Delay can increase retirement wealth for many people (Shoven and Slavov 2014). – Majority have wealth to finance a 2-year delay. – Most claim at 62 or upon retirement; few delay to 70.

3. Motivation DB pensions: – Annuity versus lump sum choices. – Lump sums often actuarially disadvantageous. – May be optimal to use lump sum to delay Social Security. Broader question: Why do people not annuitize? We present new evidence on why people claim Social Security early and choose lump sums over annuities.

4. Our Survey Panel of retirees who receive services through Towers Watson’s OneExchange health insurance marketplace Part of ongoing survey series conducted by Towers Watson. 2,620 respondents.

5. Distribution of Birth Years

6. Part 1: Social Security Claiming Choices Focus on people born after 1954 (n = 2,608). 27.2 percent have NRA = 65, 44.8 percent have NRA = 66, remainder between 65 and 66. Ask those who have claimed: – Why they claimed when they did. – How they financed a delay. – How familiar they were with various rules. Ask those who have not yet claimed when they plan to claim and why.

8. Distribution of Claiming Ages

14. Distribution of Retirement Ages

15. Distribution of Claiming Ages (Restricted Sample, n = 1,802)

17. Distribution of Retirement Ages (Restricted Sample, n = 1,802)

18. Difference Between Retirement Age and Claiming Age (Restricted Sample)

26. Part 2: Defined Benefit Payout Choices Focus on individuals who are retired from an employer (n = 2,381). Ask about DB coverage and payout options that were offered. Ask those with choice about approximate lump sum and annuity amounts. Ask those who chose lump sum: – What they did with it. – Why they chose it.

36. Conclusions Motivations for claiming Social Security early: – Need for cash. – Assumption that claiming should occur upon stopping work. – Desire to invest the money and come out ahead. Majority indicate familiarity with provisions that make delay attractive. Motivations for claiming lump sum: – Perception of actuarial fairness. – Possible desire to invest (large fraction rolled into IRA). Further steps: – Examine relationships between health, work history, and wealth drawdown behavior. – Examine generosity of lump sums versus annuties.