Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96 Page 97 Page 98 Page 99 Page 100 Page 101 Page 102 Page 103 Page 104 Page 105 Page 106 Page 107 Page 108I NCOME & WEALT H 62 other studies have contrasted people who do and do not claim benefits early, with variables of study ranging from marital status to disease and health factors to educational status to union/non-union membership to employer incentives (see, for example, Burkhauser et al. 1996, Hurd et al. 2003, and McNamara et al. 2003). Conversion of Investments to Annuities Annuities are income payments made on a scheduled basis over a set amount of time, often for the life of the recipient. Social Security benefits and many older defined-benefit pensions are payments of this type. Annuities can also be purchased. Converting wealth into an annuity for life provides guaranteed consumption and insur- ance against outliving one’s wealth. While this concept may seem attractive in the abstract, few people convert their investments into annuities, even though a large and growing proportion of the older population has participated in defined- contribution plans and/or contributed to IRAs. Looking at patterns over the 10-year period 1992 to 2002, one study found that only 4 percent of HRS participants with defined-contribution plans who left their jobs at age 55 or older annuitized their balances when they left (Johnson et al. 2004). Furthermore, only 13 percent of older HRS participants who withdrew funds from their IRAs converted the withdrawals into annuities. One interpretation of these findings is that house- holds and individuals prefer lump-sum payments, especially if they have another source of annuity income, such as Social Security. Alternatively, older adults may feel they can rely on family members for financial support in times of need, and prefer to consume or bequeath retirement benefits as desired. Another analysis suggests that voluntary annuitization rates are low among FIG. 3-5 cumulative income effects of new health shocks: 1992-2000 Source: Smith 2003. Major Health Shock Income Loss Income Loss & Medical Expenses Minor Health Shock Income Loss Income Loss & Medical Expenses $36,884 $48,941 $8,727 $11,544 Social Security Benefit Acceptance Economists and others have long been interested in understanding how Social Security and pension incentives affect retirement decisions and saving behavior. Most people have the option of claiming Social Security benefits any time between age 62 and age 70, with the annual benefit amount higher the older one is when benefits start. An important question is whether or not people choose the most economically advantageous age at which to start. In one study, investigators obtained earnings histories from the Social Security Administration (for HRS participants who permitted their records to be used) to determine if people were making Social Security claims to their maximum advantage (Gustman and Steinmeier 2000b). The data presented in Table 3-1 suggest that people who retire partially or completely, especially those under the age of 65, are claiming their benefits too early to maximize the expected value of these benefits. Numerous all other chronic disease onsets. The researchers then estimated the income effect of a given health event for each 2-year interval during 1992 to 2000, and the increased medical expense associated with each event. The cumulative income loss over the 8-year period averaged nearly $37,000 for people who experienced a major health event, and $8,700 for those who experienced a minor health event (Figure 3-5). When increased medical expenses were factored in, the amounts rose to approximately $49,000 and $11,500, respectively. The analysis found no evidence that households regained lost income in subsequent years, meaning that the initial income losses persisted. It also appeared that members of low-income households were much more likely than those in higher-income households to leave the labor force after a health event.