Annuitized Wealth and Consumption at Older Ages

38 Pages Posted: 17 Nov 2008

See all articles by Barbara A. Butrica

Barbara A. Butrica

The Urban Institute

Gordon Mermin

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2006

Abstract

The growing popularity of Individual Retirement Accounts (IRAs) and defined contribution (DC) pension plans, which generally provide benefits in the form of lump sum payments instead of annuities, is likely to affect spending patterns at older ages. People who enter retirement with little of their wealth annuitized run the risk of spending too quickly and depleting their assets before they die. Or they might spend too slowly, out of fear of running out of money, and not enjoy as comfortable a retirement as they could afford.

This study uses data from the Health and Retirement Study (HRS), including a recent supplemental expenditure survey, to examine how household expenditures among adults ages 65 and older vary by the degree of annuitization-where annuities include Social Security benefits, pensions and private annuity contracts, and Supplemental Security Income (SSI) benefits.

Results indicate that typical older married adults hold 55 percent of their retirement wealth in annuitized assets, and unmarried adults have 59 percent of their wealth annuitized. Older adults with little annuitized wealth spend more, even controlling for demographics, income, and wealth. If all defined benefit pensions (DB) were converted into unannuitized DC retirement accounts, discretionary spending could increase by as much as 3 percent for married adults and 11 percent for unmarried adults. By comparison, if Social Security was completely privatized, and retirees did not annuitize, discretionary spending could increase by as much as 22 percent for married adults and 38 percent for unmarried adults.

Suggested Citation

Butrica, Barbara A. and Mermin, Gordon, Annuitized Wealth and Consumption at Older Ages (December 1, 2006). Available at SSRN: https://ssrn.com/abstract=1300987 or http://dx.doi.org/10.2139/ssrn.1300987

Barbara A. Butrica (Contact Author)

The Urban Institute ( email )

2100 M Street, N.W.
Washington, DC 20037
United States

Gordon Mermin

affiliation not provided to SSRN ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
73
Abstract Views
879
Rank
370,936
PlumX Metrics