Document Type
Working Paper
Date of this Version
1-8-2023
Abstract
This paper investigates retirees’ optimal purchases of fixed and variable longevity income annuities using their defined contribution (DC) plan assets and given their expected Social Security benefits. As an alternative, we also evaluate using plan assets to boost Social Security benefits through delayed claiming. We determine that including deferred income annuities in DC accounts is welfare enhancing for all sex/education groups examined. We also show that providing access to well-designed variable deferred annuities with some equity exposure further enhances retiree wellbeing, compared to having access only to fixed annuities. Nevertheless, for the least educated, delaying claiming Social Security is preferred, whereas the most educated benefit more from using accumulated DC plan assets to purchase deferred annuities.
Keywords
lifecycle saving, retirement plan, annuity, longevity, delayed claiming, household finance
JEL Code
G11, G22, D14, D91
Working Paper Number
WP2023-01
Disclosure
We acknowledge research support from the TIAA Institute as well as funding provided by the German Investment and Asset Management Association (BVI) and the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania.
Copyright/Permission Statement
Opinions and any errors are solely those of the authors and not those of any individuals cited or any institutions with which the authors are affiliated. ©2023 Horneff, Maurer, and Mitchell
Acknowledgements
The authors are grateful for comments from John Ameriks, Mark Iwry, Jake Lund, and Richard Shea, and for participants at Goethe University’s ICIR Conference on “Private and Social Insurance Implications of Demographic Change.”
Date Posted: 11 January 2023