Skip to main content Accessibility help

Navigating complex financial decisions at retirement: evidence from annuity choices in public sector pensions

  • Robert L. Clark (a1), Robert G. Hammond (a2) and David Vanderweide (a3)


Choices regarding the disposition of wealth at retirement can have substantial implications for retirement income security. We analyze the factors determining annuity payout option choices within the context of a public sector defined pension plan with no default annuity option. Using combined administrative records and survey data, we explore the role of individual and household characteristics as well as risk preferences, time preferences, and financial literacy. We also document retiree well-being and satisfaction with retirement decision making. The evidence is consistent with predictions over which households might benefit most from each annuity option. Comparing retirees who chose different types of annuities, we find that these groups of retirees report very different levels of well-being in retirement. All retirees report lower levels of retirement income security over time, with strong differences among those who chose different types of annuities.


Corresponding author

*Corresponding author. E-mail:


Hide All
Aura, S (2005) Does the balance of power within a family matter? The case of the retirement equity act. Journal of Public Economics 89, 16991717.
Benartzi, S, Previtero, A and Thaler, R (2011) Annuitization puzzles. Journal of Economic Perspectives 25, 143164.
Brown, J (2001) Private pensions, mortality risk, and the decision to annuitize. Journal of Public Economics 82, 2962.
Brown, JR, Kling, JR, Mullainathan, S and Wrobel, MV (2008) Why don't people insure late-life consumption? A framing explanation of the under-annuitization puzzle. American Economic Review: Papers & Proceedings 98, 304309.
Bütler, M and Teppa, F (2007) The choice between an annuity and a lump sum: results from Swiss pension funds. Journal of Public Economics 91, 19441966.
Chalmers, J and Reuter, J (2012) How do retirees value life annuities? Evidence from public employees. The Review of Financial Studies 25, 26012634.
Chan, S and Stevens, AH (2008) What you don't know can't help you: pension knowledge and retirement decision-making. The Review of Economics and Statistics 90, 253266.
Clark, R and Cowell, J (2017) Annuity options in public pension plans In Mitchell, O, Hammond, B and Utkus, S (eds), Financial Decision Making and Retirement Security in an Aging World. Oxford, UK: Oxford University Press, pp. 130152.
Clark, R, Morrill, MS and Vanderweide, D (2014) Defined benefit pension plan distribution decisions by public sector employees. Journal of Public Economics 116, 7388.
Clark, RL, Hammond, RG, Morrill, MS and Vanderweide, D (2018 a) Annuity options in public pension plans: the curious case of social security leveling. Journal of Retirement 6, 3344.
Clark, RL, Hammond, RG and Vanderweide, D (2018 b) Navigating Complex Financial Decisions at Retirement: Evidence from Annuity Choices in Public Sector Pensions. NBER Conference on Incentives and Limitations of Employment Policies on Retirement Transitions.
Galama, TJ, Lleras-Muney, A and van Kippersluis, H (2018) The Effect of Education on Health and Mortality: A Review of Experimental and Quasi-Experimental Evidence (No. w24225). National Bureau of Economic Research.
Holden, K and Nicholson, S (1998) Selection of a joint-and-survivor pension. Institute for Research on Poverty Discussion Paper No. 1175-98.
Johnson, R, Uccello, C and Goldwyn, J (2005) Who foregoes survivor protection in employer-sponsored annuities. The Gerontologist 45, 2635.
Kotlikoff, L and Smith, D (1983) Pensions in the American Economy. Chicago: University of Chicago Press.
McFadden, D (1981) Econometric models of probabilistic choice. In Manski, CF and McFadden, DL (eds), Structural Analysis of Discrete Data with Econometric Applications. Cambridge, MA: MIT Press, pp. 198272.
McGarry, K (2014) Health and retirement: do changes in health affect retirement expectations? Journal of Human Resources 39, 624648.
Myers, D, Burkhauser, R and Holden, K (1987) The transition from wife to widow: the importance of survivor benefits to widows. Journal of Risk and Insurance 54, 752759.


Type Description Title
Supplementary materials

Clark et al. supplementary material
Clark et al. supplementary material 1

 Word (65 KB)
65 KB


Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed