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
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.
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.
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.
4
2
0
Percent
6
8
Distribution of Birth Years
1920
1930
1940
1950
In what year were you born?
1960
1970
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.
Table 1: Are you currently collecting Social Security benefits?
Yes
No, I have not yet started collecting Social Security benefits
No, I am not eligible for Social Security benefits
Missing
Not applicable (born 1954 or later)
Total
No.
2,532
46
24
6
12
2,620
%
96.6
1.8
0.9
0.2
0.5
100
Distribution of Claiming Ages
30
20
10
0
Percent
40
50
Full Sample
20
40
60
Claiming Age (Rounded Down)
80
Table 2: What type of Social Security benefit do you receive?
Retired Worker
Disability
Spousal
Survivor
Don’t know
Missing
Total
No.
2,325
28
96
41
9
3
2,502
%
92.9
1.1
3.8
1.6
0.4
0.1
100
Table 3: What is your current relationship status?
Single
In a domestic partnership
Married
Divorced
Widowed
Separated
Missing
Total
No.
112
21
1,957
120
311
6
81
2,608
%
4.3
0.8
75
4.6
11.9
0.2
3.1
100
Table 4: How did the total earnings in your career compare to
your spouses?
Mine were higher
My spouse(s) earned more
About the same
Don’t know
Missing
Total
No.
1,630
243
68
11
5
1,957
%
83.3
12.4
3.5
0.6
0.3
100
Table 5: What is your current employment status?
Working full time
Working part time
Not currently working but looking for work
Not currently working and not looking for work
Missing
Total
No.
24
201
56
2,242
85
2,608
%
0.9
7.7
2.1
86.0
3.3
100
Table 6: Have you worked in the past?
Yes
No
Missing
Total
No.
2,104
183
11
2,298
%
91.6
8
0.5
100
2
4
6
8
10
Full Sample
0
Percent
Distribution of Retirement Ages
0
20
40
60
Retirement Age (Rounded Down)
80
Distribution of Claiming Ages
(Restricted Sample, n = 1,802)
30
20
10
0
Percent
40
50
Primary Earner/Single, Retired Worker, Claim at 62+, W ork to 50+
60
65
70
Claiming Age (Rounded Down)
75
Table 7: Claim Ages (Primary Earners/Singles, Claimed at 62+, Worker Benefit,
Work to 50+)
Indicator for claiming before/at/after NRA
No.
%
Claim before NRA
1,212
67.3
Claim at NRA
424
23.5
Claim after NRA
166
9.2
Total
1,802
100
Distribution of Retirement Ages
(Restricted Sample, n = 1,802)
6
4
2
0
Percent
8
10
Primary Earner/Single, Retired Worker Benefit, Claim at 62+, W ork to 50+
50
60
70
80
Retirement Age (Rounded Down)
90
Difference Between Retirement Age
and Claiming Age (Restricted Sample)
15
10
5
0
Percent
20
25
Primary Earner/Single, Retired Worker Benefit, Claim at 62+, W ork to 50+
-20
-10
0
10
Age last worked - Claiming age
20
30
Table 8: Satisfaction with Claiming Decision (Primary Earners/Singles, Claimed at 62+, Worker Benefit, Work to 50+)
Claim before NRA Claim at NRA
Claim after NRA
Total
How strongly do you agree or
disagree with the following
No.
%
No.
%
No.
%
No.
%
I am very satisfied with my decision on when to start my Social Security benefit
Strongly Disagree
31
2.6
9
2.1
6
3.6
46
2.6
Disagree
77
6.4
13
3.1
5
3
95
5.3
Neither Agree Nor Disagree
148
12.2
29
6.8
9
5.4
186
10.3
Agree
543
44.8
195
46
73
44
811
45
Strongly Agree
391
32.3
174
41
73
44
638
35.4
Missing
22
1.8
4
0.9
0
0
26
1.4
Total
1,212
100
424
100
166
100
1,802
100
If I were to do it over again, I would have delayed starting Social Security until a later age
Strongly Disagree
248
20.5
95
22.4
35
Disagree
339
28
165
38.9
60
Neither Agree Nor Disagree
211
17.4
67
15.8
33
Agree
273
22.5
58
13.7
24
Strongly Agree
90
7.4
18
4.2
6
Missing
51
4.2
21
5
8
Total
1,212
100
424
100
166
21.1
36.1
19.9
14.5
3.6
4.8
100
378
564
311
355
114
80
1,802
21
31.3
17.3
19.7
6.3
4.4
100
Table 8: Satisfaction with Claiming Decision (Primary Earners/Singles, Claimed at 62+, Worker Benefit, Work to 50+)
Claim before NRA Claim at NRA
Claim after NRA
Total
How strongly do you agree or
disagree with the following
statements?
No.
%
No.
%
No.
%
No.
%
If I were to do it over again, I would have lived off my other retirement saving after stopping work and before
starting Social Security
Strongly Disagree
292
24.1
105
24.8
41
24.7
438
24.3
Disagree
428
35.3
198
46.7
71
42.8
697
38.7
Neither Agree Nor Disagree
209
17.2
48
11.3
27
16.3
284
15.8
Agree
158
13
34
8
10
6
202
11.2
Strongly Agree
57
4.7
17
4
7
4.2
81
4.5
Missing
68
5.6
22
5.2
10
6
100
5.5
Total
1,212
100
424
100
166
100
1,802
100
If I were to do it over again, I would have worked longer
Strongly Disagree
306
25.2
Disagree
346
28.5
Neither Agree Nor Disagree
211
17.4
Agree
229
18.9
Strongly Agree
60
5
Missing
60
5
Total
1,212
100
117
150
71
51
15
20
424
27.6
35.4
16.7
12
3.5
4.7
100
29
56
41
22
7
11
166
17.5
452
33.7
552
24.7
323
13.3
302
4.2
82
6.6
91
100 1,802.00
25.1
30.6
17.9
16.8
4.6
5
100
Table 9: Reasons for Claiming (Primary Earners/Singles, Claimed at 62+, Worker Benefit, Work to 50+)
Claim Before NRA
Claim at NRA
Claim after NRA
Total
Which best describes your reason for starting
to collect Social Security benefits when you
No.
%
No.
%
No.
%
No.
I/we needed the money
408
33.7
94
22.2
25
15.1
527
I/we didn't trust that Social Security wouldn't
cut benefits in the future
194
16
44
10.4
12
7.2
250
I felt like my health wasn't good and that I
might not enjoy a long life
123
10.1
13
3.1
5
3
141
I/we thought that I/we could invest the
money and end up ahead
249
20.5
65
15.3
15
9
329
I/we had stopped working and assumed that
one should commence Social Security
benefits as soon as possible after stopping
398
32.8
90
21.2
34
20.5
522
I had reached full retirement age and the
earnings test no longer applied to me
61
5
209
49.3
86
51.8
356
I/we were encouraged to claim by an
employee at the Social Security office
46
3.8
16
3.8
13
7.8
75
Other
177
14.6
33
7.8
24
14.5
234
%
29.2
13.9
7.8
18.3
29
19.8
4.2
13
Table 10: Time Elapsed Between Retirement and Claiming (Primary Earners/Singles, Claimed at 62+, Worker Benefit,
Work to 50+)
Claim before NRA
Claim at NRA
Claim after NRA
Total
How many months elapsed
between the time you last
worked and the time you started
receiving Social Security?
No.
%
No.
%
No.
%
No.
%
Two months or less
210
26
91
40.1
52
53.1
353
31.2
3-11 months
114
14.1
41
18.1
16
16.3
171
15.1
12-23 months
80
9.9
22
9.7
7
7.1
109
9.6
24 months or more
397
49.2
71
31.3
21
21.4
489
43.2
Missing
6
0.7
2
0.9
2
2
10
0.9
Total
807
100
227
100
98
100
1,132
100
Table 11: Financing Gap Between Retirement and Claiming (Primary Earners/Singles, Claimed at 62+, Worker Benefit, Work to
50+)
Claim before NRA
Claim at NRA
Claim after NRA
Total
How did you pay for living expenses
between the time you stopped work and the
time you started receiving Social Security?
No.
%
No.
%
No.
%
No.
%
I/we used our savings
281
47.5
64
47.8
20
45.5
365
47.5
I/we relied on my spouse's income
70
11.8
22
16.4
4
9.1
96
12.5
I/we relied on help from family and friends
0
0
1
0.7
0
0
1
0.1
I/we took out a loan
1
0.2
0
0
0
0
1
0.1
Other
334
56.5
74
55.2
25
56.8
433
56.3
Table 12: Familiarity with Social Security Rules (Primary Earners/Singles, Claimed at 62+, Worker Benefit, Work to 50+,
Born in 1943 or Later)
Claim before NRA
Claim at NRA
Claim after NRA
Total
No.
%
No.
%
No.
%
No.
%
Monthly Social Security benefits increase by about 8 percent for each year you delay starting them between age 62 and 70
Not at all familiar
20
3.5
0
0
0
0
20
2.6
18
3.1
3
2.2
0
0
21
2.8
Somewhat familiar
128
22.1
22
15.8
2
4.9
152
20.1
140
24.2
35
25.2
4
9.8
179
23.6
Very familiar
267
46.2
79
56.8
35
85.4
381
50.3
Missing
5
0.9
0
0
0
0
5
0.7
Total
578
100
139
100
41
100
758
100
Social Security benefits for widows and widowers are based on the higher of the two spouses’ individual Social Security
benefits
Not at all familiar
39
6.7
4
2.9
2
4.9
45
5.9
20
3.5
8
5.8
2
4.9
30
4
Somewhat familiar
93
16.1
21
15.1
6
14.6
120
15.8
137
23.7
33
23.7
7
17.1
177
23.4
Very familiar
277
47.9
69
49.6
24
58.5
370
48.8
Missing
12
2.1
4
2.9
0
0
16
2.1
Total
578
100
139
100
41
100
758
100
Table 13: Desire to Change Claiming Age (Primary Earners/Singles, Claimed at 62+, Worker Benefit, Work to 50+, Born in
1943 or Later)
Claim before NRA
Claim at NRA
Claim after NRA
Total
If you were contemplating retirement
today, would you be more likely to
wait to start Social Security?
No, I would make the same decision
Yes, I would delay starting Social
Security as long as I could
Missing
Total
No.
414
%
71.6
No.
115
%
82.7
No.
33
%
80.5
No.
562
%
74.1
160
4
578
27.7
0.7
100
24
0
139
17.3
0
100
8
0
41
19.5
0
100
192
4
758
25.3
0.5
100
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.
Table 14: Pension Type
What best describes the type of pension offered
by the main employer from which you retired?
Defined Benefit
Defined Contribution
Not sure which type
No retirement plan
Don't know/not sure
No.
1,817
914
195
46
46
%
76.3
38.4
8.2
1.9
1.9
Table 16: Payout Options
Thinking about the money from your defined
benefit (DB) plan, what options were offered to
you at the time you left your company?
Single Life Annuity
Joint and Survivor Annuity
Fixed Period Annuity
Lump sum amount
Other option
No.
908
1,300
94
389
52
%
50
71.5
5.2
21.4
2.9
Table 17: Lump Sum Amounts
Thinking about the lump sum benefit from your
defined benefit (DB) plan, how large was the
lump sum benefit when you came to retire?
Less than $10,000
Between $10,000 and less than $25,000
Between $25,000 and less than $50,000
Between $50,000 and less than $100,000
Between $100,000 and less than $200,000
Between $200,000 and less than $300,000
Between $300,000 and less than $400,000
Between $400,000 and less than $500,000
$500,000 or more
Don’t know
Missing
Total
No.
4
7
13
16
51
57
41
26
82
82
10
389
%
1
1.8
3.3
4.1
13.1
14.7
10.5
6.7
21.1
21.1
2.6
100
Table 18: Annuity Amounts
Thinking about one of the monthly benefits you
were offered for the rest of life, how large was
this monthly amount?
Less than $500
Between $500 and less than $1000
Between $1000 and less than $1500
Between $1500 and less than $2000
Between $2000 and less than $3000
Between $3000 and less than $4000
Between $4000 and less than $5000
$5000 or more
Don’t know
Missing
Total
No.
53
150
238
261
371
235
119
181
88
38
1,734
%
3.1
8.7
13.7
15.1
21.4
13.6
6.9
10.4
5.1
2.2
100
Table 19: Lump Sum versus Annuity Choice
Did you select a lump sum benefit or did you opt
for a monthly benefit?
Took the lump sum
Took the monthly benefit for the rest of life
Took the monthly benefit for a fixed period
Took some money as a lump sum and the rest as
a monthly benefit
Missing
Total
No.
121
194
2
%
34.9
55.9
0.6
28
2
347
8.1
0.6
100
Table 20: Use of Lump Sum Benefit
What did you do with your lump sum benefit?
Rolled it into an IRA
Used it to pay off debts or mortgage
Spent it on a splurge item such as the vacation of
a lifetime or a boat that you had always wanted
Used for normal living expenses
Invested the money in stocks, bonds and mutual
Helped my children or grandchildren with their
Other
No.
128
6
%
85.9
4
1
11
36
1
5
0.7
7.4
24.2
0.7
3.4
Table 21: Reasons for Choosing Lump Sum
To what extent do you agree with the following as reasons
you selected the lump sum benefit option?
I thought the value of the lump sum was greater than the
potential value of lifetime monthly benefits
Strongly Disagree
Disagree
Neither Agree Nor Disagree
Agree
Strongly Agree
Missing
Total
My financial advisor suggested the lump sum was of greater
value than the lifetime monthly benefits
Strongly Disagree
Disagree
Neither Agree Nor Disagree
Agree
Strongly Agree
Missing
Total
No.
%
0
7
14
54
40
34
149
0
4.7
9.4
36.2
26.8
22.8
100
15
7
38
34
17
38
149
10.1
4.7
25.5
22.8
11.4
25.5
100
Table 21: Reasons for Choosing Lump Sum
To what extent do you agree with the following as reasons
you selected the lump sum benefit option?
I needed the money to pay off existing bills and debts
Strongly Disagree
Disagree
Neither Agree Nor Disagree
Agree
Strongly Agree
Missing
Total
I did not trust the insurance company or provider of the
lifetime monthly benefit was offering me a fair deal
Strongly Disagree
Disagree
Neither Agree Nor Disagree
Agree
Strongly Agree
Missing
Total
No.
%
73
24
4
3
0
45
149
49
16.1
2.7
2
0
30.2
100
26
21
33
16
5
48
149
17.4
14.1
22.1
10.7
3.4
32.2
100
Table 21: Reasons for Choosing Lump Sum
To what extent do you agree with the following as reasons
you selected the lump sum benefit option?
I was afraid that I might die before getting back monthly
benefits equal to the value of my lump-sum balance
Strongly Disagree
Disagree
Neither Agree Nor Disagree
Agree
Strongly Agree
Missing
Total
No.
%
16
17
23
35
14
44
149
10.7
11.4
15.4
23.5
9.4
29.5
100
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.