Retirement, Social Security Deferral, and Life Annuity Demand

This paper contributes to our understanding of wealth decumulation behavior by examining trends in retirement, Social Security claiming, and annuitization decisions. Prior research suggests that while these decisions have high stakes for retirement security, people may not make them optimally. I use data from the Health and Retirement Study to examine the joint timing of these decisions. I show that younger birth cohorts are less likely than older ones to use “parallel” strategies—simultaneously retiring and commencing Social Security, or simultaneously commencing Social Security and a life annuity. Regression analysis suggests that parallel strategies are associated with defined benefit pension coverage and eligibility, being subject to the Social Security earnings test (which forces affected individuals who work while receiving Social Security to delay a portion of their benefits), and poor health. I also find that younger cohorts are more likely than older ones to forgo annuitization altogether—a trend that likely reflects declining coverage by defined benefit pensions, which typically feature annuitization as the default option. Higher real interest rates are associated with both earlier retirement and an increased propensity to start receiving a life annuity.