ANNUITY OPTIONS IN PUBLIC PENSION PLANS:
THE CURIOUS CASE OF SOCIAL SECURITY LEVELING
Robert L. Clark, North Carolina State University and NBER
Robert G. Hammond, North Carolina State University
Melinda Sandler Morrill, North Carolina State University
David Vanderweide, Fiscal Research Division, North Carolina General Assembly
Please do not cite or circulate without authors’ permission
Preliminary Draft: September 2016*
Abstract:
Public pension plans often offer retirees an annuity option that allows participants
to receive a larger benefit prior to age 62 but the pension benefit is then lowered
at age 62 when the individual is expected to claim Social Security benefits, in our
case called a Social Security Leveling option. The objective of this annuity is to
produce a level annual retirement income before and after age 62. Little is known
about how this option is used in practice and its impact on well-being in
retirement. In this analysis, we describe the level income annuity option available
to public sector retirees in North Carolina and provide analysis of the risks and
benefits of this option to various groups. Using a combination of administrative
records and survey data of retirees, we describe the characteristics of recent
retirees choosing this option. We find that one-third of all retirees selecting a
single-life annuity between 2009 and 2014 opted for Social Security Leveling.
Those selecting the level income option over the standard single-life annuity
claimed at younger ages, were more likely to be retiring under an early retirement
benefit, and had longer tenures. Survey data among retirees finds these
individuals selecting the level income single-life annuity option had less financial
security, higher perceived mortality risk, and lower confidence in their retirement
decision-making.
* This paper was prepared for presentation at the 2016 SIEPR Conference on Working Longer. This
research is part of an on-going project that is being conducted in partnership with the North Carolina
Retirement Systems Division and is being funded by the Sloan Foundation, Grant Number 2013-10-20.
The authors gratefully acknowledge the help and support of Janet Cowell, North Carolina State Treasurer,
Steven C. Toole, Director of the Retirement Systems Division, Mary Buonfiglio, Deputy Director of
Supplemental Retirement Plans, and Sam Watts, Policy Director of the Retirement Systems Division.
The authors would like to thank Nino Abashidzek, Bryan Allard, Emma Hanson, Christelle Khalaf, and
Aditi Pathak for research assistance. The opinions and conclusions expressed herein are solely those of
the authors and do not represent the opinions or policy of the North Carolina Retirement System or any
other institution with which the authors are affiliated.
1
ANNUITY OPTIONS IN PUBLIC PENSION PLANS:
THE CURIOUS CASE OF SOCIAL SECURITY LEVELING
I. Introduction
One of the most important, but least studied, choices participants in defined benefit
pension plans must make concerns the disposition of funds at retirement. Prior research has
explored the tendency of individuals to under-annuitize wealth.1 The choice of annuity type in
the private sector is heavily influenced by default options as required by the Employee
Retirement Income Security Act (ERISA). Public sector plans are not subject to ERISA, and in
many states there is no default to a joint and survivor option. Defined benefit plans in the public
sector typically allow career retirees to begin full or unreduced benefits at relatively young ages.
Individuals retiring in their 50s must determine the best way to receive pension payouts that
maximizes well-being over 30 or so years of retirement. These young retirees must also consider
the need to finance consumption prior to commencing Social Security benefits as well as in later
years of retirement.
This paper explores an annuity option available in some defined benefit plans that allows
individuals retiring before Social Security eligibility age to opt to receive a higher initial
payment in order to receive a “level” retirement income before and after they start receiving
Social Security benefits. In other words, the employer pension benefit received prior to age 62 is
equal to the pension plus Social Security benefits after age 62. This annuity option is designed to
help retirees smooth consumption, but might have unintended consequences if it discourages
1 For example, see Benatzi, Previtero, and Thaler 2011; Brown et al 2008; Brown 2001; Chalmers and
Reuter 2012; and Butler and Teppa 2007.
2
work after leaving one’s career job or encourages earlier than optimal retirement or Social
Security claiming. Typically, defined benefit plans offer workers a variety of annuity choices
and a lump sum option.
An option that levels retirement benefits with Social Security benefits is called by various
names in defined benefit pension plans, such as ‘Social Security Leveling,’ ‘Level-up,’ ‘Level
Income,’ or ‘Accelerated.’ There is limited evidence of some use of this type of annuity option
by private plans toward the end of the twentieth century as reported in several articles in the
Monthly Labor Review; however, we could find no systematic data indicating the incidence
Social Security level income options.2 Conversations with senior managers in the Bureau of
Labor Statistics and the Office of Policy and Research of the Department of Labor confirm that
there were no recent data on private sector defined benefit plans offering Social Security
Leveling, and the general assessment was that it is rare to find this type of annuity option in a
private plan.3 In contrast, as shown below, Social Security level income options are rather
common in large state-managed public plans.
This paper first documents that Social Security level income options are used by about
one-third of public defined benefit plans whose participants are also covered by Social Security.
2 Wiatrowski (1990) reported that data from the 1988 Employee Benefits Survey indicated that one in
eight defined benefit plan participants was in a plan that offered a transitional benefit to early retirees;
however, these benefits were typically in the form of a “uniform dollar amount for all plan participants
regardless of salary or length of service.” This type of early retirement incentive is not the same as the
annuity option we are examining. Blostin (2003) has a brief statement that indicates that Social Security
Leveling was used by some plans but provides no data on how frequent this option is offered and when
offered it is selected.
3 An on-line search by the authors did reveal a few private plans that offer a Social Security level income
annuity option.
3
We then explore the Social Security Leveling annuity option available to state and local
government retirees in North Carolina using both administrative and survey data. We focus on
public sector retirees that initiated retirement benefits between 2009 and 2014 and were younger
than age 62 at the time of claiming. This analysis indicates that about one-third of those
selecting a single-life annuity opted for the leveling option, or approximately one quarter of all
retirees during this period. In North Carolina, leveling is not an option for retirees who have
selected a joint and survivor annuity.
The idea behind offering a level income with Social Security is to allow individuals to
borrow against future pension benefits in order to smooth consumption throughout the remaining
years of life. However, this option might also appeal to individuals that are ‘impatient’ or those
who see a larger dollar value today without properly considering that claiming will lead to a
lower benefit in the future. We provide an example of how personal discount rates will affect the
present value of the two benefit options. We predict that only those individuals who do not plan
to continue working, who have lower than average life expectancy, and who have no other
source of post-retirement income would be most likely to benefit from leveling.
While we do observe some of these patterns in the data, we also find that individuals
claiming the level income option are actually more likely to be working in retirement. We also
observe lower levels of self-reported financial literacy and confidence in retirement decision-
making, along with higher rates of financial fragility. These patterns suggest that the choice of a
Social Security Leveling annuity is not being driven by a preference for smooth income and
instead is more consistent with a preference for a higher immediate benefit.
Throughout this analysis, we do not consider decisions made about the timing of
retirement or the decision to claim a single life instead of a joint and survivor annuity type.
4
Rather, we model only the choice between the maximum benefit and the Social Security
Leveling options among those who have chosen to retire, immediately claim benefits, and who
have decided not to request one of the joint and survivor annuity options offered by the plan.
Our analysis includes a discussion of the policy implications of the curious choice of
public plans to offer Social Security Leveling. The importance of the assumptions used in
calculating the amount of income to ‘level’ is highlighted along with the implications of the
discount rate used in calculating the benefit amount. We conclude by illustrating that allowing
leveling at age 66 as compared to leveling at age 62, as is done in some plans, may result in
lower present value of pension income for the majority of these young retirees, despite recent
evidence that delaying claiming Social Security is generally a preferable option.
Our work contributes to the debate on the welfare implications of the age of Social
Security claiming. In a series of papers, Shoven and Slavov argue that, in the current low
interest rate environment, it is present-value maximizing for most individuals to delay claiming
Social Security, in some cases to delay until age 70 (Shoven and Slavov 2013, 2014a, 2014b).
This literature distinguishes between the timing of job separation and the timing of retirement
benefit claiming. For individuals who retire from a pension system with a Social Security level
income option, the optimal path is less clear since the discount rate used by the pension system
and the benefit reductions imposed by Social Security may have different effects on the present
value of lifetime income.
The crucial question is how an individual should finance consumption in the early years
of retirement and how this impacts future retirement income security. Claiming Social Security
at age 62 is one way to do this; however, the Shoven and Slavov argument is that, at near-zero
real interest rates, liquidating retirement savings (e.g., IRAs) is preferable to early Social
5
Security claiming. Thus, one might predict that accessing defined pension benefits early would
have a similar appeal. However, we illustrate that in North Carolina the (arguably too high)
discount rate that the pension system uses in valuing the Social Security Leveling option results
in the opposite conclusion. It is still the case, though, that individuals may benefit from
accessing other forms of savings before claiming Social Security. In addition, individuals with
little to no assets who retire prior to Social Security eligibility might also benefit from leveling in
order to finance consumption in early retirement years.
II. Background on Public Sector Annuity Options
A. Is Social Security Leveling a Widely Offered Annuity Option?
Clark and Cowell (2016) reviewed the annuity options of 85 large state-managed public
plans which cover teachers, state, and/or local employees and found that 20 of these plans
offered a Social Security Leveling annuity option.4 Employees and teachers in 17 of the plans
are not covered by Social Security and so none of these plans offer a leveling option. Thus,
about 30 percent of the 68 plans in which participants are included in the Social Security system
offer a Social Security Leveling option.
Table 1 lists each public plan with this annuity option along with the type of employees
covered by the plan, the number of active workers covered by the plan, and the age at which the
pension benefit is reduced if Social Security Leveling is chosen. In total, these plans covered 2.3
million active workers in 2012. Fifteen of the twenty plans specify age 62 as the age at which
benefits are reduced while two plans set age 65, one age 66, one uses the full retirement age for
Social Security benefits, and Virginia allows retirees to select any age between age 62 and the
4 These plans are described in bi-annual reports by the Wisconsin Legislative Council (2013).
6
full retirement age for Social Security benefits.5 Obviously, only plans in which participants are
also covered by Social Security have a level income option. In addition, rules regarding normal
and early retirement ages will influence whether the plans will offer a benefit option that links
pension benefits to Social Security claiming.
[Table 1]
B. North Carolina Retirement Plans and Annuity Options
Teachers and state employees in North Carolina are covered by the Teachers’ and State
Employees’ Retirement System (TSERS), while local government workers participate in the
Local Governmental Employees’ Retirement System (LGERS).6 Participants in both plans are
also generally covered by Social Security. The parameters of the two plans are very similar.
Both plans have five-year vesting, the same eligibility and retirement requirements, and are
managed by the Department of State Treasurer. There is a slight difference in the generosity of
the two plans in that the benefit formula for LGERS is 1.85 percent of final average salary per
year of service while the TSERS formula is 1.82 percent of final average salary per year of
service. Final average salary is determined by the four highest consecutive years of earnings.
In order to qualify for normal or unreduced benefits, the employee must have satisfied
one of three criteria: reached age 65 with 5 years of membership service; reached age 60 with 25
years of service; or have attained 30 years of service at any age. Early retirement with reduced
5 Georgia offers it retirees an “Accelerated Benefit” option which if chosen provides a monthly benefit
equal to 135 percent of the single life benefit for the first five years of retirement after which time benefits
are actuarially reduced.
6 The important characteristics of TSERS and LGERS are described in
https://www.nctreasurer.com/ret/Benefits%20Handbooks/TSERShandbook.pdf and
https://www.nctreasurer.com/ret/Benefits%20Handbooks/LGERShandbook.pdf
7
benefits are available to those who have reached age 50 and completed 20 years of creditable
service and those who have reached age 60 and completed 5 years of service.
For many public employees in North Carolina, these plans provide a strong economic
incentive to retire in their 50s well before qualifying for Social Security at age 62. Upon
termination and achieving the age and service requirements, retirees must request from the
retirement system that their benefits begin and the annuity option they desire. This is a one-time
option and no benefits are paid until the benefit request has been finalized, i.e., there is no default
benefit, retirees must submit a request for benefits to be paid, and a choice of payout must be
made. Both plans have the same six annuity options which include a single life annuity, a 100%
Joint and Survivors (J&S), a 50% J&S, Social Security Leveling, and two additional J&S options
with a pop-up provision if the retiree’s spouse dies first.
The retirement plan for teachers and state employees and the state-managed pension plan
for local employees in North Carolina are typical of state and local pension plans across the
country. These plans offer retirees a variety of annuity choices along with a lump sum
distribution option. Public sector retirement plans are not subject to ERISA rules regarding the
calculation of a lump sum distribution or the requirement that joint and survivor annuities be the
default annuity option. In most public defined benefit plans, lump sum distributions are based
solely on employee contributions plus accrued interest. Most benefit claimants with long careers
who have attained retirement eligibility find that the present value of the annuity exceeds the
lump sum distribution amount (see Clark, Morrill, and Vanderweide, 2014 for a discussion of
lump sum distributions in North Carolina). The benefit formula stated in plan documents
determines the annual benefit based on the single life of the retiree. Typically, this option,
8
sometimes called a maximum benefit, provides the largest monthly benefit a retiree can receive
given their work history.
Plan actuaries set the terms of all annuity options so that they are present value neutral,
relative to the maximum benefit option, to the retirement system using plan discount rates and
mortality assumptions, described in detail in Appendix A. At the time of claiming, the retiree
must choose an annuity option and will then have a set benefit amount for the rest of their own,
or in the case of a J&S annuity their spouse’s, life.7 Upon request, retirees are given the actual
values for each of the annuity options and can then select the annuity option that seems best for
their personal financial situation.
The Social Security Leveling option was added to the two North Carolina plans in 1955.
In the 1955 leveling option, the benefit assumed Social Security claiming at age 65, which at that
time was the earliest age at which one could collect Social Security benefits. In 1959, the target
age for leveling was reduced to age 62 for women but age 65 was retained for men. Finally, the
terms of the annuity option were amended in 1963 so that both men and women could select
Social Security Leveling with the leveling age set at 62.8 While we have found no record
confirming the reason why the state modified the Social Security Leveling option to target age
62 instead of 65, one can speculate that the modification was influenced by the change in federal
law allowing early claiming at age 62 and the subsequent surge in Social Security claiming age
at age 62.
7 Historically, the General Assembly has awarded cost-of-living adjustments to retirees in both systems
that averaged close to the annual increase in CPI; however, in recent years, there have been few increases
in benefits and they have averaged much less than the increase in CPI.
8 These changes were driven by changes in federal legislation which first introduced early retirement
benefits for women in 1956 and then for men in 1961.
9
III. Modeling the Social Security Leveling Benefit
A. Social Security Leveling Benefit Calculations
The first step in determining the value of the leveling benefit is to calculate the single life
annuity benefit, known as the ‘maximum benefit,’ which is derived directly from the benefit
formula specified by the retirement system. The maximum benefit calculation is:
We refer to the maximum benefit level as BMAX. YOS is the number of years of service at
separation, and AFC is the average final compensation calculated using the highest four years of
earnings. The pension multiplier, M, is 0.0182 for workers in TSERS and 0.0185 for workers in
LGERS. Early is an early retirement reduction factor that is imposed for an individual claiming
benefits prior to attaining the age and service requirements for unreduced benefits. The
reduction factor is a function of claiming age and the number of years the retiree is short of
qualifying for unreduced benefits.9
Retirees selecting the Social Security Leveling option must submit an estimate of the
anticipated Social Security benefit that they will be eligible to receive at age 62 provided by the
Social Security Administration based on the assumption that they will not have any further
9 See the benefit handbooks of the two retirement plans at
https://www.nctreasurer.com/ret/Benefits%20Handbooks/TSERShandbook.pdf and
https://www.nctreasurer.com/ret/Benefits%20Handbooks/LGERShandbook.pdf
For most employees, Early is one minus the lesser of 5% per year prior to 30 years of service and 3% per
year between age 60 and 65 plus 5% per year prior to age 60.
10
earnings between their retirement and age 62.10
The retirement system then calculates an initial
retirement benefit that can be paid immediately to the retiree and a lower benefit that will be paid
after age 62. The leveling benefits in these two periods are priced relative to the maximum
benefit. Before age 62 (period 1), the pension benefit amount is equal to the maximum benefit
plus the expected Social Security payment (SS) times a leveling factor, F. After age 62 (period
2), the Social Security Leveling pension benefit is equal to the period 1 benefit minus the
expected Social Security benefit, thus providing a ‘level’ income throughout retirement of
pension plus Social Security payments.
(1)
(2)
The calculation of the leveling benefit does not depend on whether the individual actually
intends to claim Social Security at age 62, and the system does not check to see if Social Security
benefits are initiated at age 62 or whether the benefit received is equal to the estimated value
used for leveling.
The leveling factor is a function of the gender specific mortality experience of the
system, the ratio of male to female retirees, and the interest rate specified by the system. The
objective is to determine the period 1 and period 2 benefit amounts so that the present value of
10
The request for an estimate of the Social Security benefit beginning at age 62 is described in page 35 of
https://www.nctreasurer.com/ret/Employers/TSERSEmployerManual.pdf “If, at retirement, the member
wants an estimate under Option 4, he or she must furnish the Retirement Systems Division with an
estimate, obtained by the member from the Social Security Administration, of the Social Security benefit
available to him or her at age 62. The member should request the age 62 Social Security estimate, in
today’s dollars, if he or she stops working at the age he or she will be on his or her effective date of
retirement. This estimate should be obtained within 2 years prior to his or her effective date of
retirement.”
11
the Social Security Leveling option is equal to the present value of the maximum benefit from
the perspective of the retirement system. The benefit calculations use gender-specific mortality
rates that are then combined using proportions of males and females that reflect the participants
in the plan. Thus, the Leveling benefits before and after age 62 are the same for men and women.
To calculate the present value of the two benefit streams, the retirement system uses
survival probabilities taken from the retirement system’s experience study reports and the
mortality tables referenced therein along with the assumed nominal interest rate of 7.25
percent.11
Both of the North Carolina retirement plans assume that they will earn an annual
return on investments of 7.25 percent so that benefit adjustments in the leveling option are made
using the expected value of the return that the system could have earned if they had not moved
payments forward using the leveling option.12
Thus, theoretically the Social Security Leveling
option is cost-neutral to the retirement system relative to the maximum benefit option, using the
assumptions established by the Board of Trustees of the two retirement plans. However, as
shown below, the high discount rate used in the calculation implies that the two options do not
provide the same present value, from the perspective of the retiree, using conventional levels of
personal discount rates.
11
Appendix A describes the calculation of the leveling benefit in detail by discussing the development of
the leveling factor and how it has changed over time. The system updated its mortality experience in 2012
to reflect improvements in life expectancy, which resulted in higher leveling factors. This change may
have made leveling slightly more appealing for post-2012 retirees by a very small amount, but take-up
rates for leveling actually dropped slightly.
12 Most public defined benefit plans assume that they will earn an annual return of between 7.0 and 8.5
percent on their investments. These relatively high assumed returns have been criticized by many
economists (Novy-Marx and Rauh, 2011.
12
A simple example illustrates the impact of Social Security Leveling on the amount and
time pattern of the pension benefit. Figure 1 illustrates the values of the two options facing an
individual claiming benefits prior to age 62. Assume that a worker reaches age 57 and could
retire and immediately begin a benefit based on the maximum benefit option of $2,000. The
retiring worker reports to the retirement system that her expected Social Security benefit at age
62 is $1,200. Using this information and the leveling factor, the system would determine that the
benefit would be $2,761 per month until age 62 and then $1,561 per month for the rest of the life
of the retiree. Together with a Social Security benefit of $1,200, the post-62 total retirement
income is ‘level’ at $2,761.
[Figure 1]
This calculation does not yield clear guidance on whether the individual is ‘better off’
receiving a total of $2,761 per month beginning when the pension benefit is first claimed for the
remainder of her life or receiving $2,000 per month in pension benefits prior to age 62 and then a
total of $3,200 per month after age 62 (i.e., $1,200 per month from Social Security and $2,000
per month from the pension). Answering this welfare question is complicated by a number of
factors. If an individual plans to continue paid employment after claiming a pension benefit,
then she may not need to access pension benefits early to smooth consumption. If an individual
has a shorter than average life expectancy due to poor health, she may benefit from receiving the
higher benefit earlier. And, of course, a high personal discount rate will lead one to more highly
value the near term larger income stream.
Table 2 uses a simple present value formula, derived in Appendix A, to calculate the
present value of both the maximum benefit and leveling options. For simplicity, we present
estimates for men with a table for women in the appendix. Note that the only difference in the
13
present value calculation between genders is the survival rate, with women living longer than
men. The survival difference is small but leads to a difference in the present value calculation
from the retiree’s perspective since women will be receiving the smaller post-62 leveling benefit
for more years relative to men. Thus, even though the present value of the leveling benefit is
higher for women than men, the relative value of the maximum benefit to leveling benefit means
that leveling is a “better deal” for men than women, all else equal. However, the difference due
to survival probabilities is small and empirically this effect is likely to be swamped by the impact
of the personal discount rate. Note that individual’s perceived mortality will operate in a similar
direction to the male/female difference where longer lifespans will lead one to more often prefer
(holding all else equal) the maximum benefit option. We observe both of these patterns in the
data.
First, consider the present value of the maximum benefit option evaluated by both the
system and the individual at 7.25 percent. The retirement systems perform all calculations using
a blended mortality rate, so that the factor used price Social Security leveling is the same for men
and women. The entries in Table 2 for the benefits for both annuity options are based on a
hypothetical retiree that would qualify for a maximum benefit of $2000 and a Social Security
benefit at age 62 of $1,200 with no further work after retirement from public employment at age
57, as shown in Figure 1. Given these values, the present value of a pension benefit of $2,000
for life is $267,128 for men assuming a personal discount rate of 7.25 percent.
[Table 2]
If the derivation of B1 and B2 is cost neutral to the system relative to paying the
maximum benefit and the discount rate used by the individual is also 7.25 percent, the present
value of leveling would be the same as that for the single life annuity, the maximum benefit
14
option, for both the system and the retiree. When comparing between the Social Security
Leveling benefit and Maximum Benefit options, we see that using a personal discount rate of
7.25 percent the leveling benefit is slightly larger. This is because we are using the male-only
survival rates while the system prices using a blended rate. Note that for women, the maximum
benefit option is slightly larger in present value terms than the Social Security Leveling option
($276,954 versus $276,100), details presented in the appendix.
Economists have argued that a lower personal discount rate such as 2.9 percent would be
a more reasonable representation of the rate used by the average retiree.13
This rate is also more
closely aligned with potential market yields to an individual investor. The impact of this lower
discount rate on the present value of the maximum benefit compared to the leveling option is
also shown in Table 2. Note that the benefits before and after age 62 are those calculated by the
system using the 7.25 percent discount rate. The assumed lower discount rate used by the retiree
results in a higher present value of both benefit options; however, the present value of the
maximum benefit is now 6.3 percent higher than that of the leveling benefit option. Clearly the
relative “value” to the retiree of the two options hinges on an individual’s personal discount rate
and need to smooth consumption. The present value as viewed by the retiree of the maximum
benefit compared to leveling options is greater the lower the interest rate used by the retiree.
The implication of this exercise is that, for the typical retiree, Social Security Leveling
yields a lower present value of their lifetime pension benefit if their personal discount rate is
lower than 7.25%. This suggests that retirees with lower life expectancies, higher personal
discount rates, and those with an immediate need for income in the pre-62 years will find
leveling a desirable option.
13
See papers by Shoven and Slavov for a discussion of appropriate discount rates for recent retirees.
15
The bottom two rows of Table 2 report the present value of Social Security benefits for
an individual with a benefit of $1,200 per month if take at age 62 and a benefit of $1,600 per
month if claimed at age 66. The present values are calculated at age 57 when, in our example,
the retiree is making a decision on whether to select the leveling option. This comparison yields
results that are consistent with Shoven and Slavov indicating that at low discount rates the
present value of claiming Social Security benefits at age 66 is greater than at age 62. It should
also be noted that if one assumes a personal discount rate of 7.25% then claiming Social Security
at age 62 yields a higher present value of lifetime benefits. These patterns are similar for
women, as shown in Appendix Table A2.
B. Model Predictions
Given this understanding of how Social Security Leveling works, we now present several
hypotheses for why an individual might choose this annuity option when claiming their pension
benefit. First, it is clear from the framing of Social Security leveling that a consumption
smoothing motivation should play a role for some individuals separating from career
employment at an age earlier than Social Security eligibility.14
Second, the larger initial monthly
benefit under Social Security Leveling paid at ages younger than 62, relative to the benefit paid
in these early years under the “maximum” benefit option, should be important to individuals for
whom immediate spending needs are important in the decision making process, which we refer
to as “myopic benefit maximization.”
14
Obviously, some individuals will have other resources that would allow them to smooth consumption
over their retirement years such as IRAs, 401(k) account balances, and other assets. In this paper, we do
not attempt to model the use of these funds to level consumption. See Goda, Ramnath, Shoven, and
Slavov, (2015) for a discussion of these issues.
16
Individuals motivated by consumption smoothing are conforming to well-known decision
rules advocated by economists. However, questions remain about the empirical validity of
consumption smoothing as a predominant factor in explaining intertemporal consumption and
savings behavior. Myopic benefit maximization as a motivation for choosing Social Security
Leveling could be used to describe the behavior of individuals in two very different situations.
Under myopic benefit maximization, an individual could seek to finance consumption in the
early years of retirement in a deliberate way that reflects consideration of alternative income
streams for consumption in these years. However, myopic benefit maximization also applies to
individuals who are attracted to a higher immediate benefit because they place a high weight on
immediate consumption needs because they perceive their retirement and other asset holdings at
separation as insufficient. In short, some individuals may choose Social Security Leveling
because they feel that they need the larger benefit now.
To shed some light on the relative importance of these hypotheses, we analyze data on
older public sector workers in the North Carolina Teachers’ and State Employees’ Retirement
System (TSERS) and Local Governmental Employees’ Retirement System (LGERS). As
previously discussed, a meaningful fraction of individuals separating from employment and
beginning a benefit from these plans choose Social Security Leveling. We perform our analysis
using a matched dataset of administrative records and survey data.
IV. Data Description
The data used in this analysis are from two sources. First, we obtained administrative
data files for all participants in TSERS and LGERS who initiated pension benefits between 2009
and 2014. The administrative records contain detailed information about each retiree including
earnings, job information, years of service, creditable service, year of retirement, annuity option
17
chosen, and benefit amount. From the universe of recent retirees, we extracted a stratified
random sample who were sent a survey developed by the authors in spring 2015. The survey
focused on obtaining additional personal information not contained in the administrative
questions about race/ethnicity, education level, household income and wealth, work status after
claiming retirement benefits and marital status, along with questions about their spouses’
characteristics (if applicable) and time spent caregiving. In addition, the survey obtained
information on the annuity choice of the retiree, whether in retirement they were happy with this
choice, and other questions targeted to assess the annuity choice and its impact on well-being in
retirement.
After the survey was closed, responses were matched to the administrative records. In
the following analysis, where possible, we examine individual behavior using all retirees in the
administrative records. We then add the personal information obtained in the survey to provide a
more complete analysis of retiree choices and attitudes. Appendix B provides detail on the
sample construction and data used. The total number of recent benefit claimants is 72,350,
shown in Table 3, Column 1. Of these, 36,883 retired prior to age 62 and were thus eligible for
the leveling option (see Column 2). Column 3 reports means when the sample is further limited
to only individuals who selected a benefit based on a single life annuity, i.e., either the maximum
benefit or the leveling benefit. We then merge this set of records with the survey data, so that
Column 4 provides sample means for our survey respondents claiming benefits at an age younger
than 62 and selecting a single life annuity option.15
Comparing Columns 3 and 4 illustrates that
15
The survey is part of a larger project and covers all benefit claimants from 2009 to 2014. Our overall response
rate on the survey was 22%. For the sample used in this paper, the survey was sent to 9,650 individuals with 2,256
useable responses yielding a response rate of roughly 23%. For more detail on the larger project, please see our
website: https://sites.google.com/site/publicsectorretirement/. Note that Column 4 excludes two survey respondents
who met all other criteria but who have both a TSERS and LGERS account.
18
our survey sample is reasonably representative of the population of interest. Some notable
differences are that the survey respondents tended to have higher final average salary and
maximum initial benefit amounts and were more likely to have more than 30 years of service at
retirement.
[Table 3]
Considering the means reported in Table 3, Column 2, we see that almost two-thirds of
individuals retiring before age 62 had sufficient years of service to be eligible for an unreduced
retirement benefit. About 80 percent of all retirees were state employees and teachers with the
remainder being city and county employees throughout the state. The average age of starting
retirement benefits for all retirees is 60.7 and for those that retired prior to age 62, the mean age
is 56.9. In general, the public sector tends to be predominantly composed of female employees
as the modal occupation is teacher. The North Carolina data are consistent with this observation
as about two-thirds of the retirees during the sample period were women. Interestingly, when
comparing Columns 2 and 3, we note that a higher percentage of women compared to men select
a single life annuity.
The initial question for this research is whether Social Security Leveling is an important
annuity option for retirees, in other words, is Social Security Leveling simply a curious anomaly
made available to public employees or an important annuity choice that demands attention and
therefore should be a topic for policy review. To answer this question, we examine annuity
choices of all retirees claiming benefits prior to the age of 62 between 2009 and 2014. At the
bottom of Table 3, we see that 23.4 percent of retirees younger than age 62 chose the leveling
option. If the sample is restricted to individuals who chose a single life annuity, in Table 3,
Column 3, we see 33.4 percent of these retirees opted for Social Security leveling. Figure 2
19
indicates that the proportion of retirees selecting a single life annuity is relatively constant with
age but that over time, a lower percentage of retirees were choosing a single life option.16
[Figure 2]
The value of selecting Social Security Leveling to a retiree is likely to decline with age as
the number of years that one is eligible to receive the higher leveling benefit declines. This
pattern is clearly shown in Table 4 and Figure 3 as about half of all individuals claiming a single
life annuity prior to age 55 chose Social Security Leveling. This rate declined to over one third
of single life claimants age 55 to 59 and further to 15.0 percent for those aged 60-61. In
summary, over one quarter of all participants claiming benefits prior to age 60 selected the Social
Security Leveling option. This relatively high rate of selecting Social Security Leveling
highlights the importance of an analysis of why retirees find this to be their preferred form of
income in retirement. We now examine what types of retirees are selecting the leveling option.
[Table 4]
[Figure 3]
V. Social Security Leveling Uptake Among Retiring Workers in North Carolina
Thus far, we have shown that Social Security Leveling is relatively common option in
public pension plans across the country and that in North Carolina, approximately, one quarter of
all retirees eligible to select this annuity option have done so. Throughout this exercise, we
assume an individual makes many decisions leading up to the point of choosing Social Security
Leveling. First, she chooses the timing of separation from a career employer. At that point, she
chooses either to withdraw funds as a lump sum, take a joint and survivor benefit, or a single life
16
The increase in the use of J&S annuities coincides with the 2012 shift in pricing of the J&S options
relative to the maximum benefit.
20
annuity. Once the retiree has decided on a single life annuity, she then decides between the
maximum benefit which provides a constant monthly benefit for life or the leveling option that
offers a higher benefit before age 62 followed by a lower benefit after age 62.
A. Theoretical Predictions
We begin modeling the decision made between the maximum benefit and the Social
Security Leveling option once all other decisions have been made. We note that any parameters
that impact prior choices will in turn affect the sample composition of who might be facing the
Social Security Leveling option choice. Thus, one must be cautious about interpreting patterns
as the sample composition is likely changing over time due to macroeconomic conditions and
retirement timing, as well as the relative pricing of J&S to single life annuities.
The lifetime consumption smoothing model suggests that, all else equal, an individual
will maximize utility by consuming a level amount throughout her lifetime. If an individual
expects to receive an annuity payment from Social Security, she should prefer to access a higher
proportion of her pension benefit at younger ages in order to smooth consumption over her
lifetime. On the other hand, behavioral biases such as hyperbolic discounting will lead an
individual to prefer immediate consumption over delayed consumption, even when it does not
actually maximize lifetime utility. In the case of the “annuity puzzle,” individuals under-insure
for longevity risk because they prefer immediate consumption. Thus, an individual may be
harmed if an option for a higher pension payout today is appealing simply because of a myopic
consideration of a high immediate benefit rather than as part of a fully rational spending plan.
Given the front-loaded nature of leveling benefits, there are several hypotheses of
interest. We divide the considerations into two categories: factors that will affect desirability of
consumption smoothing and factors associated with myopic considerations or behavioral biases.
21
Note that we model only the decision between Social Security Leveling and the Maximum
Benefit options. To reach this decision, an individual has already chosen an optimal retirement
age and a single-life rather than joint-and-survivor annuity.
Demographics and Socioeconomic Status. The Social Security Leveling annuity option
is designed to allow individuals to smooth consumption before and after claiming Social Security
benefits. We predict that the younger one claims retirement benefits, the more likely one is to
select Social Security Leveling since the need for smoothing is potentially greater over longer
time periods, conditional on not working. However, if one plans to work at another job after
claiming retirement benefits, then one should find the leveling option less appealing. To the
extent that younger individuals are more likely to work after retirement, we would actually
expect younger individuals to be less likely to choose leveling, all else equal.
Similarly, those that have a higher potential market wage will be more likely to choose to
work after retirement. Thus, we expect that individuals with higher education and earnings to be
less likely to choose leveling relative to the maximum benefit option. In addition, the size of the
retirement benefit might influence the need to consumption smooth as individuals that have less
income will find that Social Security is a larger share of their retirement wealth. Thus, for this
reason as well, we anticipate that those with lower initial benefits are more likely to choose the
leveling option.
It is ambiguous whether individuals that are claiming reduced benefits under early
retirement should prefer leveling or not. On the one hand, the initial benefit is lower and there is
more time until Social Security eligibility, so that would make an early retiree more likely to
choose leveling. In addition, the observation that one is claiming benefits early reveals
something about their preferences. On the one hand, it could be that her perceived life
22
expectancy is lower. On the other hand, it could be that the claimant has high wage outside
options and is retiring early to begin a new career. Thus, the predictions for the association
between early benefit and leveling option are theoretically ambiguous.
All system benefits are based on a unisex life table developed by system actuaries from
the mortality experience of participants. Given their shorter average life expectancies, men
should be more likely to select Social Security Leveling than women, all else equal. In general,
individuals with a lower perceived life expectancy should be more likely to select Social Security
Leveling. Similarly, individuals in good health should be less likely to choose leveling both
because they have longer subjective survival probabilities and because they have higher labor
market potential earnings. Conditional on having decided to take some form of single-life
annuity, it is unclear how marital status or spouse’s earnings might impact the decision to take
the leveling option.
Interest Rates. The leveling benefit is calculated using a discount rate of 7.25% (or 7.5%
prior to 2012). Claimants with discount rates that exceed the interest rate used to calculate the
Leveling benefit will be more likely to choose Social Security Leveling. While the fall in
interest rates over the last decade has increased the value of delaying the age of claiming Social
Security benefits, a lower personal discount rate is predicted to yield a higher present value of
the Maximum Benefit option relative to the Social Security Leveling option. Moreover, as
Social Security Leveling pushes individuals to claim Social Security benefits at age 62, we might
anticipate that fewer individuals would choose Social Security Leveling over time. Of course,
time patterns in the decision to take-up leveling over the Maximum Benefit option will also
reflect changes in retirement age and uptake of the joint-and-survivor option.
23
Because the discount rate used to calculate the leveling option is higher than market rates,
retirees that have other sources of wealth would be better off by self-financing the early years of
retirement rather than selecting the leveling option. If the retirement benefit represents a higher
fraction of household wealth, the individual might be more likely to select leveling over the
maximum benefit in order to better smooth consumption. Thus, we predict that, all else equal, an
individual who is unmarried or who is the primary earner in the family will be more likely to
choose the leveling option.
Myopic Benefit Maximization. Some individuals may choose the leveling option
simply from the myopic observation that the immediate check received will be higher, so that the
selection of leveling does not reveal a preference for consumption smoothing as part of a
retirement plan. We test for myopic benefit maximization by analyzing individual characteristics
that we hypothesize are correlated with myopic behavior across a range of financial decisions:
measures of financial literacy and educational attainment. If myopic behavior plays an important
role in the choice of leveling, individuals with lower levels of financial literacy and those with
fewer years of education should be more likely to choose the leveling annuity option. Further,
we observe several measures of retirees’ well-being. If individuals are choosing leveling simply
to receive a larger payment initially, we would observe that responses to retirement well-being
will differ before and after age 62.
B. Empirical Findings from Administrative Records
We test these hypotheses using the universe of retirees and the smaller survey sample by
estimating a LPM model with the dependent variable equaling one if the retiree selected the
leveling option, zero otherwise. The samples are based on all retirees who claimed a single life
annuity and who were younger than age 62 at the time of claiming. Again, we model only the
24
decision between Social Security Leveling and the Maximum Benefit option, acknowledging that
retirees will have chosen retirement timing and single-life versus joint-and-survivor annuity prior
to that point. First, we use the administrative records to model the decision to take-up the
leveling option. The sample is identical to Table 3, Column 3. Here the dependent variable is
having selected the leveling option. The results from the administrative records for the entire
sample are presented in Column 1 of Table 5 and separately for men and women in Columns 2
and 3. As expected, the pooled results indicated men are about 4 percentage points more likely
to choose leveling. This is consistent with the fact that men have shorter life expectancies, on
average, so that the ratio of the present value of leveling relative to maximum benefit is higher
for men than women.
[Table 5]
The regression coefficients reported in Table 5 reveal a clear age pattern as each year of
age results in a lower probability of choosing leveling of 3 percentage points for both men and
women. While this is consistent with individuals further from Social Security eligibility age
having a stronger need to smooth consumption, it is not consistent with younger individuals
having a higher potential to engage in post-retirement work. Note that the estimated coefficient
on age at claiming is holding constant whether the retirement was early or normal, as well as the
years of service.
Next, we see that having chosen an early retirement, conditional on years of service, is
also associated with a higher uptake of Social Security Leveling, with an even stronger
relationship for women than men. This is inconsistent with early retirement being used as an
option to engage in outside work post-retirement. However, it may be that the same underlying
preferences result in myopic benefit maximization and claiming benefits as soon as eligible.
25
When considering years of service, we see an opposite pattern whereby the omitted category,
having at least 30 years of service, has the highest rate of uptake for leveling.
We observe that a higher maximum initial benefit amount is associated with a lower take-
up of leveling, with a slightly stronger relationship for men than for women. A higher maximum
benefit is likely associated with higher potential labor market earnings and higher levels of
wealth accumulation to self-finance. It may be that the variable is only significant for men as
their earnings are more likely to represent a larger portion of the household-level income in
retirement. We observe that the highest take-up of the leveling benefit is to those that retire from
primary state government (the omitted category). Finally, the utilization of leveling has declined
slightly over time.17
C. Empirical Findings from Survey Responses
The survey of retirees provides us with the opportunity to examine annuity choice
process utilizing personal information that is not available on the administrative records.
Individuals were surveyed in 2015, so the responses are between one to five years after initiating
retirement benefits. Table 6 presents sample means for the survey respondents for respondents
less than age 62 who selected a single life annuity, and then separately for individuals selecting
the maximum benefit and the leveling annuity. We present the p-value of the difference in
means.
[Table 6]
17
The regression model also includes indicators for having multiple benefit accounts. As described in
more detail in the appendix, individuals have the option to combine accounts or to claim accounts
separately. If an account has been combined, we only observe the merged account in the data. Thus,
opting to keep the accounts separate indicates something about an individual’s preferences regarding
pension payouts.
26
First, we consider the individuals’ current work status in retirement. The consumption
smoothing motive suggests that individuals choosing leveling should be less likely to work in
retirement. However, there is no statistically significant difference in work status in retirement
between those choosing Maximum Benefit and Leveling and the mean is 36 percent. We again
find that men are more likely to select leveling, but we observe that those choosing leveling are
more likely to be married men and less likely to be married women. This is consistent with
predictions that if pension benefits are a higher proportion of family income, one should be more
likely to desire to smooth that benefit. As predicted, retirees who report that they are in good
health and have a higher probability of living past age 85 are less likely to choose the leveling
benefit. Individuals with higher levels of education are more likely to have chosen the maximum
benefit.
The results in Table 6 allow us to assess the relative importance of consumption
smoothing as a key factor in explaining the choice of a leveling annuity option. The fact that
individuals who chose leveling are more likely to be working after separating from their career
employer, and more likely to have a working spouse, suggests that a level income is not a
predominant motivation. To consider whether myopic benefit maximization plays an important
role, we look at individuals with less education and lower level of financial literacy. These
individuals are more likely to choose leveling and are more likely to engage in myopic behavior,
suggesting that myopic behavior plays a role in the choice of leveling, in contrast to consumption
smoothing. Further, those choosing leveling have lower levels of household income, suggesting
the higher immediate benefit provided by the Social Security leveling option is an important
consideration.
27
To look further at the importance of myopic benefit maximization as a motivation for
choosing the leveling option, Table 7 considers several measures of well-being in retirement
using survey responses. The questions used for the dependent variables in Table 7 are listed in
Appendix A. Each column presents the results from an LPM model, where the well-being
measures are as follows: whether the individual reported that they had enough information in
their annuity choice, had saved enough upon retirement, have been able to maintain a satisfactory
standard of living, and are not financially fragile. The first three measures are from stated
perceptions in response to questions with an agree/disagree/neither set of answer choices. The
fourth measure is derived from the response to whether the individual could “come up with
$2,000 if an unexpected need arose within the next month.”
[Table 7]
Table 7 indicates that individuals who chose Social Security Leveling have a higher level
of financial fragility in retirement, although the estimated coefficients are not statistically
significant. We interpret this result as being consistent with the findings in Table 6 that leveling
is chosen by individuals who feel that the “need” the higher immediate benefit, perhaps because
they perceive that they have inadequate retirement savings. Interestingly, we see that those with
fewer years of service are less financially fragile, perhaps because of additional work experience
outside of the public sector. We see that those with higher pension benefits and more education
are more financially secure, while single women and non-Hispanic black individuals are
significantly less likely to be financially secure in retirement.
The second measure of retirement well-being, had saved enough upon retirement,
provides directional support for the hypothesis that leveling is chosen by those who need to
“make up” for inadequate savings, where the estimated effect is large but statistical insignificant:
28
individuals who chose leveling and were older than 62 are nine percentage points less likely to
report having saved enough for retirement. Those that claimed at older ages are more likely to
have saved enough, as are those with higher pension benefits.
Columns 3 and 4 also suggest that perceived retirement well-being for those who chose
leveling depends on whether the survey respondent is older than 62 or not. This is intuitive
because a 61 year old “leveler” is responding to the survey while receiving an annuity that is
larger than the maximum benefit, while a 62 year old “leveler” is responding while receiving a
smaller benefit. Our findings suggest that levelers who are now in the lower-benefit period (i.e.,
post-62) no longer believe they had enough information when they chose their benefit (consistent
with regret) and no longer report having been able to maintain a satisfactory standard of living.
Interestingly, we find that those selecting leveling are significantly more likely to be able to
maintain their standard of living prior to age 62 but then after age 62 are not. The effect sizes of
these two results are similar but only the sufficient information result is statistically significant.
In total, we interpret the results in Tables 6 and 7 are suggestive than myopic benefit
maximization is an important factor in understanding which individuals select the Social Security
leveling annuity option.
VI. Discussion and Future Work
Our analysis has shown that Social Security Leveling is an annuity option offered by 20
large public defined benefit plans. The experience of recent retirees in North Carolina shows
that a substantial proportion of younger retirees are selecting this option, which changes the
lifetime pattern of their retirement income. Clearly, Social Security Leveling is not merely just a
curious oddity but instead is a significant policy issue that merits consideration and review.
We have documented that the retirement system offers leveling in a manner that is cost
29
neutral to the system. The pricing is based on an interest or discount rate of 7.25 percent. This is
the same rate that the system assumes that it will make on its investments. It seems unlikely that
individuals in today’s economic climate would use such a high discount rate for future income
when market interest rates hover near zero. Our calculations show that when individuals use a
lower discount rate, the present value of leveling is less than the present value of the maximum
benefit annuity. Thus, for the average retiree, Social Security Leveling would seem to be a
suboptimal choice from a present-value perspective.
Despite this finding, it is easy to see why some retirees will select the leveling option.
Individuals with shorter than average expected lifetimes will have a higher present value of
benefits paid under leveling compared to the maximum benefit. Retirees with immediate income
needs may also find leveling a superior choice. Thus, individual and household differences can
explain some of the sorting of retirees into those selecting leveling as their best option.
Is Social Security Leveling at age 62 a wise public policy? The answer to this question
depends on how selecting leveling affects other choices by retirees. Our results suggest that,
rather than the obvious smoothing motivation, at least some individuals who chose leveling
appear to be motivated by the simple fact that leveling provides a higher immediate benefit. We
attempt to distinguish between two reasons to prefer a higher immediate benefit, at the cost of a
lower later benefit, noting that this preference can be a part of a calculated retirement plan or can
be a myopic approach to front-loading benefits. We find evidence that favors myopic benefit
maximization as an important component of the choice of the leveling option for at least some
retirees.
Our future research will consider how the availability and uptake of this option affects
retirees’ and their spouses’ well-being both immediately after retirement and throughout their
30
retirement years. We are currently building a longitudinal data file for older workers and retirees
in North Carolina through a series of surveys beyond the survey responses reported in this paper.
These data will be used to examine the annuity choices of new retirees, how leveling affects
retirement income, and the post-retirement work patterns of public employees.
31
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33
Figure 1. Illustration of Single Life Annuity Options for a Hypothetical Retiree
Notes: Calculations are provided in Appendix A. The numbers assume a retiree claims benefits
at age 57 and is eligible for a maximum single-life benefit of $2,000 per month. We assume the
retiree is eligible for a reduced Social Security benefit of $1,200 at age 62 (this implies a PIA of
$1,600). The Social Security Leveling benefit would then be $2,761 prior to age 62 and $1,561
after age 62 ($1,561 + $1,200 yield a level income of $2,761).
Max Benefit = $2,000 Monthly
Post-62 Leveling Benefit = $1,561
Pre-62 Leveling Benefit = $2,761
Age 62 Current Age
34
Figure 2. Time Pattern of Single Life Annuity Choice
Notes: Sample is all benefit claimants from 2009 to 2014 who were ages 46 to 70 at the time of
claiming.
.3.4
.5.6
.7.8
New
Be
ne
fit A
ccou
nts
45 50 55 60 65 70Age at Claiming
2009 2010
2011 2012
2013 2014
Percent Selecting a Single-Life Annuity
35
Figure 3. Time Pattern of Social Security Leveling
Notes: Sample is all benefit claimants from 2009 to 2014 who were ages 46 to 70 at the time of
claiming.
0.2
.4.6
.8
New
Be
ne
fit A
ccou
nts
45 50 55 60 65 70Age at Claiming
2009 2010
2011 2012
2013 2014
Percent Selecting Social Security Leveling
36
Table 1. State Annuity Options Social Security Leveling
State Plan Information
Alaska PERS Age of leveling 65 for DB participants. Left SS in 1986, DC in 2006.
State and local employees, 11,688 active employees
Idaho PERS SS FRA
State, local, and teachers, 65,270 actives
Illinois SRS Age 66
State employees, 62,732 activities
Illinois MRF Age 62
Locals, 174,381 actives
Indiana PERF Age 62. Hybrid plan annuity from DB component.
State and local employees, 145,519 activities
Indian TRF Age 62. Hybrid plan annuity from DB component.
Teachers, 72,872 activities
Kentucky KERS Age 62
State employees, 46,282 activities
Kentucky CERS Age 62
Local employees, 92,182 activities
Michigan SERS Age 65. DB plan frozen March 31, 1997. All new hires after in DC plan.
State employees
Michigan PSERS Age 62.
Teachers, 236,660 employees
NC TSERS Age 62
State employees and teachers, 310,627 activities
NC LGERS Age 62
Local employees, 121,638 employees
North Dakota TRF Age 62 or SS FRA
Teachers, 10,138 activities
Rhode Island ERS Age 62
State employees and teachers, 24,378 activities
South Dakota SDRS Age 62
State and local employees and teachers, 38,207 activities
Tennessee CRS Age 62
State and local employees and teachers, 214,860 activities
Vermont SRS Age 62
State employees, 8,158 employees
Vermont TRS Age 62
Teachers, 10,101 activities
Virginia SRS Retiree chooses any age between 62 and SS FRA
State and local employees and teachers, 341,826 activities
Wisconsin WRS Age 62
State and local employees and teachers, 257,254 activities
Similar Annuity Option
37
Georgia ERS Accelerated Benefit. A monthly benefit equal to 135% of the Maximum
Plan Benefit, payable for the first five continuous years of your retirement.
After five years, your monthly benefit will be actuarially reduced, and the
reduced benefit will be paid for your lifetime.
Information on Social Security Leveling annuity option and type of covered employees is based
on a review of retirement system websites. The number of active employees covered by the
retirement systems is provided in the 2012 report by the Wisconsin Legislative Council.
38
Table 2. Present Values of Retirement Benefit Options Using Male Survival Rates
Present Value Using
Personal Discount Rate ri
Annuity Type Monthly $
Age 57-61
Monthly $
Ages 62+ ri =7.25% ri =2.9%
Maximum Benefit $2,000 $2,000 $267,128 $412,529
Social Security Leveling $2,761 $1,561 $268,279 $388,058
Social Security Age 62 $1,200 $119,434 $225,413
Social Security Age 66 $1,600 at age
66 $112,284 $237,802
Notes: These calculations assume a male retiree with survival expectations equivalent to the
experience study assumptions. The leveling benefits are offered by the retirement system and are
based on blended survival probabilities so that men and women are offered the same leveling
benefits if they have the same maximum benefit. The retiree claims a retirement benefit at age
57. The maximum benefit is assumed to be $2,000, with the Social Security leveling benefit
equal to $2,761 before age 62 and $1,561 after age 62. The assumed Social Security benefit at
age 62 is $1,200, which corresponds to a benefit of $1,600 if claiming is delayed to age 66. The
present value is calculated using the personal discount rate indicated accounting for age-specific
survival rates according to the experience studies of the TSERS/LGERS retirement systems
effective in 2012. Details of the calculations are provided in the Appendix A.
39
Table 3 Means of Individuals Claiming Retirement Benefits between 2009 and 2014
Variables All
Retirees
Claiming
Before 62
Claiming
Before 62
and Selecting
a Single Life
Annuity
Survey
Respondents
(Response
Rate 23%)
(1) (2) (3) (4)
Number of Benefit Accounts 72,350 36,883 25,839 2,256
Age at Claiming 60.7 56.9 56.9 56.6
Age at Termination 60.7 56.8 56.8 56.6
Early Retirement 36.1% 37.3% 39.8% 34.9%
TSERS 79.1% 80.9% 83.0% 83.2%
Community College 4.3% 3.3% 3.2% 4.1%
Local Government 21.0% 19.1% 17.0% 16.8%
Primary Government (and
Proprietary Unit)
19.7% 19.4% 18.3% 15.7%
Public Schools 46.9% 51.3% 55.0% 55.6%
University 8.1% 6.8% 6.5% 7.7%
Receiving Health Insurance 100% 78.3% 81.1% 83.1% 83.5%
Receiving Health Insurance 50% 0.02% 0.01% 0.02% 0.04%
Male 34.2% 31.1% 24.7% 19.1%
Years of Service 22.9 26.9 26.51 27.45
Years of Service 5-19 35.1% 14.6% 15.6% 13.2%
Years of Service 20-24 15.6% 13.5% 14.5% 11.6%
Years of Service 25-29 19.2% 24.9% 24.5% 22.5%
Years of Service 30+ 30.1% 47.0% 45.4% 52.7%
Final Average Salary $51,447 $55,208 $53,199 $61,116
Maximum Initial Benefit Amount $1,876 $2,264 $2,142 $2,534
Annuity Type:
SS Leveling 12.0% 23.4% 33.4% 31.8%
Max 56.0% 46.7% 66.6% 68.2%
OPT2 10.5% 8.2%
OPT3 3.7% 3.3%
OPT62 11.0% 11.1%
OPT63 6.9% 7.4%
Has any other account 7.5% 5.5% 4.3% 1.7%
Has both TSERS/LGERS 0.13% 0.12% 0.09% 0.0%
Notes: Only primary TSERS and LGERS accounts are included in the sample, as described in
Appendix A1. The bottom row indicates the percent of the sample that has both a TSERS and
LGERS account in the data. Column 4 excludes survey respondents meeting all other criteria but
who have both a TSERS and LGERS account.
40
Table 4. Proportion of new single life benefit claims selecting Social Security Leveling
Year of Claiming Age 44-54 Age 55-59 Age 60-61
2009 59.08% 37.23% 15.66%
2010 51.90% 37.07% 17.65%
2011 50.41% 36.35% 14.13%
2012 51.37% 40.30% 17.54%
2013 49.83% 36.12% 17.13%
2014 47.70% 33.44% 16.86%
Total 2009-2014 51.77% 36.80% 16.47%
Notes: Percent of newly claimed retirement benefit accounts that chose Social Security
Leveling versus the maximum benefit option. Rows are the year of claiming. See Table 3,
Column 3, for a description of the sample, N = 26,056.
41
Table 5. Choice of Social Security Leveling Among Single Life Annuitants
All Men Women
(1) (2) (3)
Male 0.043*** (0.007) Age at Claiming -0.034*** -0.033*** -0.034*** (0.001) (0.002) (0.001) Early Retirement 0.114*** 0.082*** 0.125*** (0.012) (0.023) (0.014) Years of Service 5-19 -0.258*** -0.230*** -0.270*** (0.019) (0.039) (0.022) Years of Service 20-24 -0.187*** -0.193*** -0.187*** (0.016) (0.032) (0.018) Years of Service 25-29 -0.074*** -0.070*** -0.075*** (0.010) (0.021) (0.011) Maximum Initial Benefit Amount (1K) -0.052*** -0.064*** -0.047*** (0.007) (0.013) (0.009) Maximum Initial Benefit Amount (1K)
2 0.000 0.001 -0.000
(0.001) (0.001) (0.001) Community College (TSERS) -0.028* -0.054* -0.017 (0.017) (0.032) (0.020) Local Government (All LGERS) -0.087*** -0.106*** -0.077*** (0.009) (0.016) (0.012) Public Schools (TSERS) -0.103*** -0.088*** -0.104*** (0.008) (0.014) (0.009) University (TSERS) -0.090*** -0.123*** -0.076*** (0.013) (0.023) (0.015) Claimed in 2010 -0.014 -0.004 -0.017 (0.010) (0.020) (0.011) Claimed in 2011 -0.031*** -0.037* -0.028*** (0.009) (0.019) (0.011) Claimed in 2012 -0.005 -0.030 0.003 (0.010) (0.020) (0.011) Claimed in 2013 -0.027*** -0.030 -0.026** (0.010) (0.020) (0.011) Claimed in 2014 -0.042*** -0.042** -0.042*** (0.010) (0.020) (0.011) Mean Dependent Variable 0.334 0.389 0.315
Observations 25,839 6,370 19,469
Notes: Dependent variable is having chosen Social Security Leveling. Data are from administrative
records on pension benefit claimants who initiated benefits between 2009 and 2014. Individuals are ages
44 to 61 and all chose a single-life option. Regression is a linear probability model with standard errors
in parentheses. Omitted category of agency class is ‘primary government’ and ‘proprietary unit’
(TSERS) and omitted claiming year is 2009. A constant term and control variables for having multiple
benefit accounts are included by not reported. *** p<0.01, ** p<0.05, * p<0.1
42
Table 6. Leveling Decision among Current Benefit Claimants Who Responded to Survey
N Total
Max
Option
Leveling
Option
Mean Difference
p-value
Currently Working 2263 36.00% 35.10% 37.90% 0.207
(0.480) (0.478) (0.485)
Married Male 2263 12.50% 11.60% 14.50% 0.052
(0.331) (0.320) (0.352)
Single Male 2263 6.60% 6.50% 7.00% 0.662
(0.249) (0.246) (0.255)
Single Female 2263 32.40% 32.20% 32.70% 0.814
(0.468) (0.468) (0.470)
Married Female 2263 48.50% 49.70% 45.80% 0.085
(0.500) (0.500) (0.499)
White 2263 80.70% 84.50% 72.40% 0.000
(0.395) (0.362) (0.447)
Black 2263 16.10% 12.50% 23.80% 0.000
(0.367) (0.331) (0.426)
Other Race 2263 2.00% 1.90% 2.40% 0.441
(0.141) (0.136) (0.152)
Less than BA 2263 27.00% 23.00% 35.50% 0.000
(0.444) (0.421) (0.479)
Bachelor’s Degree 2263 32.30% 32.90% 30.90% 0.338
(0.468) (0.470) (0.462)
Master’s Degree 2263 35.90% 38.80% 29.70% 0.000
(0.480) (0.487) (0.457)
Professional Degree/PhD 2263 4.10% 4.60% 2.90% 0.061
(0.198) (0.209) (0.169)
Self-reported health good 2263 63.70% 66.00% 58.90% 0.001
(0.481) (0.474) (0.492)
Self-reported financial knowledge
HIGH
2263 47.40% 48.50% 45.00% 0.121
(0.499) (0.500) (0.498)
If married, spouse’s health is good 1380 54.40% 55.30% 52.40% 0.314
(0.498) (0.497) (0.500)
If married, spouse currently works 1380 55.90% 53.30% 61.40% 0.005
(0.497) (0.499) (0.487)
Self-reported HH income <50K 2263 36.60% 35.80% 38.30% 0.249
(0.482) (0.480) (0.486)
Self-reported HH income >=50K 2263 59.70% 60.30% 58.60% 0.464
(0.491) (0.490) (0.493)
Missing HH income 2263 3.70% 3.90% 3.10% 0.298
(0.188) (0.195) (0.172)
Expect to live less than 85 2236 29.60% 28.40% 32.10% 0.073
(0.456) (0.451) (0.467)
Expect to live more than 85 2236 48.80% 51.10% 43.80% 0.001
(0.500) (0.500) (0.497)
Don’t know own mortality 2236 21.60% 20.50% 24.00% 0.061
(0.412) (0.404) (0.428)
Notes: Standard deviations are in parentheses. Last column presents p-values for pr-test for binary
variables and for t-test for continues variables.
43
Table 7. Well-being in Retirement
Not
Financially
Fragile
Saved
Enough
Had Enough
Information
Maintain
Standard of
Living
(1) (2) (3) (4)
SS Leveling Annuity -0.045 -0.026 0.015 0.059**
(0.028) (0.031) (0.016) (0.027)
SS Leveling * Current Age >= 62 -0.017 -0.064 -0.069*** -0.060
(0.046) (0.051) (0.026) (0.044)
Age at Claiming 0.006 0.014** 0.003 0.006
(0.005) (0.006) (0.003) (0.005)
Current Age >= 62 0.025 -0.009 0.011 0.033
(0.036) (0.040) (0.021) (0.034)
Early Retirement -0.021 0.005 -0.032 -0.025
(0.044) (0.049) (0.025) (0.042)
Years of Service 5-19 0.224*** 0.140* 0.035 0.046
(0.074) (0.083) (0.042) (0.071)
Years of Service 20-24 0.135** 0.041 0.040 -0.051
(0.063) (0.070) (0.036) (0.060)
Years of Service 25-29 0.039 0.025 -0.013 -0.029
(0.036) (0.040) (0.020) (0.034)
Maximum Initial Benefit Amount (1K) 0.135*** 0.088** 0.042** 0.094***
(0.034) (0.038) (0.020) (0.033)
Maximum Initial Benefit Amount (1K)2 -0.011*** -0.006 -0.005* -0.008*
(0.004) (0.005) (0.002) (0.004)
Community College (TSERS) 0.037 0.135** 0.023 0.061
(0.056) (0.063) (0.033) (0.054)
Local Government (All LGERS) 0.018 0.105*** 0.019 0.012
(0.034) (0.038) (0.020) (0.033)
Public Schools (TSERS) -0.055* 0.010 -0.004 0.013
(0.030) (0.033) (0.017) (0.028)
University (TSERS) 0.092** 0.082* -0.004 -0.003
(0.043) (0.048) (0.025) (0.041)
Married Male 0.051 0.018 -0.010 0.040
(0.032) (0.036) (0.019) (0.031)
Single Male 0.018 -0.001 -0.037 -0.036
(0.042) (0.047) (0.024) (0.040)
Single Female -0.109*** -0.091*** 0.019 -0.085***
(0.023) (0.025) (0.013) (0.022)
Non-Hispanic Black -0.274*** -0.178*** -0.038** -0.058**
(0.029) (0.032) (0.016) (0.028)
Other Race/Ethnicity -0.114 0.058 0.029 -0.058
(0.071) (0.079) (0.041) (0.069)
BA Degree or more 0.129*** 0.029 -0.005 -0.069***
(0.027) (0.030) (0.016) (0.026)
Year of Claiming 0.002 0.002 0.012*** 0.002
(0.007) (0.007) (0.004) (0.006)
Constant 0.049 -0.424 0.644*** 0.323
(0.270) (0.301) (0.154) (0.258)
Number of Obs. 1,969 1,937 1,939 1,926
44
Mean Dependent Variable 0.688 0.572 0.934 0.773
Notes: Data are from a survey of individuals who initiated retirement benefits from 2009-2014, chose a
single-life annuity option (max benefit or SS leveling), and were younger than age 62 at the time of
claiming. Administrative records and survey responses are as of spring 2015. Specification includes all
variables presented in Table 5 and adds self-reports from survey responses. Dependent variables are
indicated in the column headings, details are provided in the appendix. *** p<0.01, ** p<0.05, * p<0.1
Appendix Page 1
Appendix A: Social Security Leveling Calculations
In this appendix, we present detailed calculations on how the North Carolina retirement
systems derive the initial benefit at retirement for the two single life annuity options offered to
retirees: the maximum benefit and the Social Security Leveling annuity. The initial monthly
benefit amount at retirement for individuals selecting the Social Security Leveling benefit is
calculated relative to the initial maximum benefit available to the retiree, as described in the
manuscript text. Throughout this exercise, we assume no cost of living increases (COLAs) in
future benefits to be consistent with the way that the retirement system performs their valuations
for all annuity options.18
The administrative records combined with plan documents include
information on all inputs to this benefit formula, as well as the value for BMAX.
The leveling factor, F, is derived from taking a present value calculation of the maximum
benefit option taken at different ages. We define Ann(A,C) as the present value at retirement age
A of the maximum benefit annuity claimed at the age of starting Social Security, C. This value is
then compared to the present value of an immediate maximum benefit annuity at age A, referred
to as Ann(A,A). In the current policy, the age of assumed Social Security claiming, C, is age
62. To calculate the present values, the retirement system uses an assumed maximum lifespan of
120 years with survival probabilities taken from the retirement system’s experience study reports
and the mortality tables reference therein. Prior to 2012, the retirement system used the 1984
experience study estimates, (“Early and Optional Retirement Factor Tables”, October 1, 1984).
18
An assumption of no COLAs is also appropriate given the recent historical rates at which COLA’s have
been given; specifically, COLAs of 1% were given in both 2012, and 2014, while inflation averaged
1.6% since July 2007.
Appendix Page 2
Beginning in 2012, the retirement system now uses the 2012 experience study report estimates.19
The discount rate, rN, was 7.5% prior to 2012 and was modified to 7.25% in 2012.
The present value of an annuity deferred to age C calculated at age A is:
(A.1)
The value of Ann(A,C) is calculated separately for men and women and then the rates are
“blended” by multiplying male by 0.4 and female by 0.6 and summing together.20
The annuity
values are also adjusted by the industry-standard 11/24ths adjustment for monthly payment,
denoted CtsAdj in equation (A.1). Thus, theoretically the Social Security Leveling option is
cost-neutral to the retirement system relative to the maximum benefit option, using the
assumptions established by the Board of Trustees of the two retirement plans. However, the
discount rates of 7.25% or 7.5% are quite high relative to market rates, so the two options are not
necessarily identical in present value terms for the retiree unless she also has a high personal
discount rate.
To construct the factor that is applied to the maximum benefit, the retirement system
takes the ratio of the present value of the annuity benefit deferred to age C relative to the present
value of the annuity benefit claimed at the current age, A.
(A.2) )
19
In 2017, the retirement system is adopting new estimates, but this is outside the timeframe studied in
this paper.
20 The convention of using a fixed proportion of males and females could lead to an underestimate of the
true cost-neutral discounting since we find about three-quarters of those selecting a single-life annuity are
women.
Appendix Page 3
Thus, the Social Security Leveling factor is only a function of age at initial claiming and
age at deferral, since the benefit level BMAX will cancel out. The current policy only allows for
deferral to age 62. Using these values, one can theoretically construct alternative leveling
policies that would use Social Security claiming ages at 66 or even 70.
Present Value:
For present value calculations, we retain the pension system experience study survival
rates and use alternative personal discount rates ri. In calculating the present value of the benefit
streams, we first use the discount rate employed by the retirement system to calculate the
leveling benefit, 7.25 percent. Next, we repeat the analysis using a rate of 2.9 percent that
adopted by Shoven and Slavov (2012) in their analysis of the present value of Social Security
benefits. We define two time periods: Period (1) is the time from initiating the employer pension
benefit until initiating Social Security; Period (2) is the time from assumed claiming of Social
Security until death. Here A denotes the age at claiming the retirement pension and C denotes
the age at claiming Social Security. The notation uses ri for the discount rate used in the present
value calculation and rN for the discount rate used by the retirement system for calculating the
leveling factors. We adopt the retirement system’s approach of using mortality tables to derive a
probability of survival and sum the present value until age 120.
When taking the present value of Social Security benefits, we assume a growth in Social
Security benefits of α = 2% that begins at age 62. The value of the initial Social Security benefit
is denoted SS and the pension benefit is B with the subscript denoting the annuity option type
(leveling age or maximum benefit) and the superscript denoting the time period. We calculate all
Appendix Page 4
present values separately for men and women and use the gender-specific survival rates provided
by the pension system.
Because the maximum benefit is simply the same dollar value monthly until death, the
present value can be written as:
(A.3)
The present value of the leveling option must consider separately the two time periods:
(A.4)
Here, F is the ratio of the present value of benefits at age A of an annuity claimed at age C to the
present value of benefits at age A claimed immediately. Thus, if the personal discount rate and
subjective survival probabilities are identical to the assumptions used in calculating F, then the
second two terms basically cancel out and the present value of the Maximum Benefit and Social
Security Leveling options are nearly identical.
Alternatively, we now calculate the present value of both pension benefit options using
gender-specific survival rates and three alternative personal discount rates. To get the present
value at age A of claiming Social Security at age C, we use a simple present value formula with
gender-specific survival rate from the pension plan experience studies. We again simulate three
personal discount rates, ri. We assume a growth in Social Security benefits of α = 2%.
(A.5)
Appendix Page 5
Simulation Exercise:
For this exercise, we create a hypothetical retiree that is eligible for an immediate TSERS
Maximum Benefit of $2,000. This individual has a Social Security early retirement estimate of
$1,200 and a normal Social Security estimate of $1,600 at age 66.21
Using the notation from the
equations above, Appendix Table A1 presents the comparison between the Maximum Benefit
option and the Social Security Leveling option. The present values are calculated as above and
include both the pension and Social Security benefit.
Definitions:
rN: Discount rate used by the retirement system to price the factors.
A: Age at pension benefit claiming.
C: Age at Social Security benefit claiming.
B1: Pension benefit during time period 1 (before Social Security Claiming)
B2: Pension benefit during time period 2 (after Social Security Claiming)
SS: Social Security benefit starting at age C.
ri: Discount rate used by the individual to weigh future benefits at time 0.
Appendix Table A1: Comparison of Max and Social Security Leveling
Annuity
Type
Chosen
rN A C F B1 B
2 SS
Max N/A 57 62 N/A $2,000 $2,000 $1,200
Level
62 7.25% 57 62 0.634 $2,761 $1,561 $1,200
21
https://www.ssa.gov/oact/quickcalc/early_late.html In the case of early retirement, a benefit is reduced
5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of
months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when
normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is
calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent. The $1,600 benefit
at age 66 does not reflect the COLA that applies from age 62.
Appendix Page 6
Appendix Table A.2: Present Value Calculations Using Female Survival Rates
Present Value Using
Personal Discount Rate ri
Annuity Type Monthly $
Age 57-61
Monthly $
Ages 62+ ri =7.25% ri =2.9%
Maximum Benefit $2,000 $2,000 $276,954 $441,494
Social Security Leveling $2,761 $1,561 $276,100 $410,840
Social Security Age 62 $1,200 $128,080 $252,988
Social Security Age 66 $1,600 at age
66 $123,411 $274,028
Notes: These calculations assume a female retiree with survival expectations equivalent to the
experience study assumptions. The retiree claims a retirement benefit at age 57. The maximum
benefit is assumed to be $2,000, with the Social Security leveling benefit equal to $2,761 before
age 62 and $1,561 after age 62. The assumed Social Security benefit at age 62 is $1,200, which
corresponds to a benefit of $1,600 if claiming is delayed to age 66. The present value is
calculated using the personal discount rate indicated accounting for age-specific survival rates
according to the experience studies of the TSERS/LGERS retirement systems effective in 2012.
Details of the calculations are provided in the Appendix A.
Appendix Page 7
Appendix B: Sample construction and restrictions
1. Administrative Records
The retirement system maintains records for several retirement plans including
firefighters, judicial classes, and the legislature.22
We construct our data using administrative
records on active retirement benefit accounts that were initiated between January 1, 2009 and
December 31, 2014. We only consider retirement accounts from the TSERS or LGERS
retirement systems. We exclude any accounts that are suspended. We do not include ancillary
accounts from other systems but do retain an indicator if the individual has other benefit
accounts, which might include the transfer benefit option or another retirement system such as
the legislature or firefighters. We also exclude any accounts that were closed for any reason,
including disability, withdrawal, or transfer of benefits. We exclude firefighters and law
enforcement officers that are within TSERS and LGERS, since the eligibility rules are different
for those plans.
We confirm that the remaining 80,241 benefit records are unique accounts – individuals
may only receive one benefit from TSERS and one benefit from LGERS. We make further
exclusions as listed in Appendix Table B1 below. These include: recorded years of service is
less than 5 years, termination of employment before 2008, days between termination and
claiming greater than one year, and missing gender code. We end up with 72,350 unique benefit
accounts representing 72,254 individuals with one account and 96 individuals with both a
TSERS and LGERS account.
22
While we focus solely on those accounts in TSERS and LGERS, individuals may also have accounts with these
other systems. Where relevant, we include an indicator variable for the individual having an additional membership
in another retirement plan. About 1% of our sample has both an active TSERS and LGERS retirement benefit. For
those individuals we keep both records and treat them as separate observations but retain an indicator variable.
Appendix Page 8
To create the sample for Table 3, Column 2, we exclude individuals claiming at age 62
and above. We also exclude individuals whose age at claiming or years of service combination
does not match the requirements for either an early or normal benefit account. This yields
36,883 observations. To create the sample for Table 3, Column 3, we only keep those choosing
a maximum benefit or Social Security leveling option, N = 25,839.
2. Key Policy Details
Here we outline some key policies that were in place during the 2009-2014 time period.
Return to work:
Our data will include some individuals that have “retired” but are still working within the system
according to the rules below.
o Pension benefits can be received while working at any other job not covered by
that pension. This includes a TSERS employee working under LGERS and vice
versa.
o Pension benefits can be received while working for a job at the prior employer as
long as the position is not eligible for pension benefits (typically a part-time
position).
o Pension benefits will be suspended if an individual works in a job that is covered
by the same pension. After 3 years of service, the earned benefits can be
combined into one account. If 3 years of service are not reached, the new account
is not eligible for pension benefits and must be withdrawn as a lump sum.
Multiple benefit accounts:
We retain individuals that have multiple benefit accounts and include TSERS and LGERS
accounts separately in the data. The rules on maintaining multiple benefit accounts are below.
Appendix Page 9
o Each retirement benefit account can be paid separately and there are no
restrictions on coordinating annuity type or timing. Individuals with multiple
accounts have the option to consolidate them by transferring service from one
account to another. The average final compensation (AFC) used is that from the
receiving account, while the years of service is the sum of all accounts. We
cannot track in the data whether the benefit account is the sum of multiple
benefits earned under different retirement systems.
o An individual may have multiple membership accounts due to:
Long break in work
Return to work
Work with a different retirement system (first TSERS, then LGERS etc.)
Years of Service:
In our data, we only observe creditable service, which is a combination of tenure and optional
purchased service. Using date of hire and date of termination, which are measured with some
error, we estimate that most individuals have about 6-8 months of purchased service on top of
membership service.
o Creditable service: service calculation used for determining benefit level
Membership service
Purchased service: withdrawn service, military service, out-of-state,
temporary, educational leave, workers’ compensation, community service,
parental leave, extended illness leave, etc.
Purchased service from other benefit account, Unused sick leave, vacation
time
o Contributory service: service calculation used for determining eligibility
Appendix Page 10
3. Survey Questions on Retiree Well-being
The retiree well-being outcomes in Table 7 of the text are derived from the following questions.
Please indicate whether you agree or disagree with the following statements regarding your
choices at retirement [Strong Disagree; Disagree; Somewhat Disagree; Somewhat Agree;
Agree; Strongly Agree]:
I believe I had enough information to make good decisions regarding my retirement from North Carolina public employment.
I believe I saved enough for retirement while working.
I believe my standard of living is the same as, or better than, it was before I retired from NC public employment.
Dependent variables are binary outcomes equal to 1 if the individual selected one of the three
“agree” options.
How confident are you that you could come up with $2,000 if an unexpected need arose
within the next month?
ଠ I am certain I could come up with the full $2,000.
ଠ I could probably come up with $2,000.
ଠ I probably could not come up with $2,000.
ଠ I am certain I could not come up with $2,000.
Dependent variable is a binary indicator of NOT choosing the first option (including skipping
the question).
Appendix Page 11
Appendix Table B1: Sample Construction
Restriction Count of
Observations
Sample
Size
All eligible benefit accounts 80,241
Reported service credit < 5 years 368 79,873
Terminated prior to 2008 5,043 74,830
Days between termination and benefit claiming >= 366 2,454 72,376
Missing gender code 26 72,350
Full Administrative Records
Table 3, Column 1
72,350
Remove combinations of age and YOS that are not
consistent with eligibility
299 72,051
Only those claiming prior to 62 35,168 36,883
Full Administrative Records for Claimants Age <62
Table 3, Column 2
36,883
Single-Life Annuity Claimants Age <62
Table 3, Column 3
25,839
Single-Life Annuity Claimants, Age <62, Validated
Email Address and Eligible for Survey 9,650
Survey Sample Responses 2,256
Completed Survey Response
Table 3, Column 4
2,256
Note: The survey response rate was 23% for the sample used in this paper.