Annuity Options in Public Pension Plans: The Curious Case of Social Security Leveling
by Robert L. Clark, Robert G. Hammond, Melinda S. Morrill - #23262 (AG)
Social Security Leveling is an annuity option that allows participants to receive a level income before and after age 62. The retiree receives a larger pension benefit prior to age 62, but then the pension benefit is lowered at age 62 when the individual is expected to claim Social Security benefits. This option is not uncommon in public pension plans, yet little is known about how this option is used in practice and its impact on well-being in retirement. Our study uses a combination of administrative records and survey data from recent North Carolina public sector retirees.
We find that one-third of all retirees selecting a single life annuity between 2009 and 2014 opted for Social Security Leveling.
The evidence suggests that individuals are choosing this option in a way that is consistent with their stated preferences and a consumption smoothing motive. However, we also see higher rates of ex post "regret" in the annuity choice among those choosing the level income option.
A Head-to-Head Comparison of Augmented Wealth in Germany and the United States
by Timm Boenke, Markus Grabka, Carsten Schroeder, Edward N. Wolff - #23244 (AG LS PE)
We provide levels of, compositions of, and inequalities in household augmented wealth - defined as the sum of net worth and pension wealth - for two countries: the United States and Germany. Pension wealth makes up a considerable portion of household wealth: about 48% in the United States and 61% in Germany. The higher share in Germany narrows the wealth gap between the two countries: While average net worth in the United States (US$337,000 in 2013) is about 1.8 times higher than in Germany, augmented wealth (US$651,000) is only 1.4 times higher. Further, the inclusion of pension wealth in household wealth reduces the Gini coefficient from 0.892 to 0.701 in the United States and from 0.765 to 0.511 in Germany.