Working Paper: NBER ID: w30115
Authors: Robert L. Clark; Olivia S. Mitchell
Abstract: One of the most important financial decisions that pension participants make concerns how they access their pension assets when they terminate employment with their plan sponsor. Their choices depend both on own preferences and the options offered by their retirement plan. This paper examines both past and future pension withdrawal choices for those with defined benefit and defined contribution pensions, separately. Our data are drawn from a set of pension distribution questions we fielded in the Understanding American Study. Results show significant differences in distribution choices based on the type of retirement plan, with individuals covered by defined benefit plans significantly more likely to select annuities compared to similar employees covered by defined contribution plans. We also find differences in how higher annual income affects annuity choices based on coverage by DB plans. Individuals with lower levels of financial literacy and lower annual income have less knowledge of basic pension characteristics.
Keywords: No keywords provided
JEL Codes: D12; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| participants in defined benefit (DB) plans (H55) | select annuities (G22) |
| participants in defined contribution (DC) plans (J32) | select annuities (G22) |
| higher financial literacy (G53) | less likely to be uncertain about retirement plan options (J26) |
| older individuals (J14) | more inclined to select annuities (G52) |
| nonwhite individuals (J15) | less likely to select annuities (G52) |
| Hispanic/Latino individuals (J15) | less likely to select annuities (G52) |
| high-income individuals covered by DB plans (J32) | more likely to select annuities (G52) |
| income levels (J31) | interaction with plan type in determining distribution preferences (D39) |