This paper uses administrative data from TIAA, one of the largest defined contribution retirement plan providers in the U.S., to document time series variation in participant choices regarding retirement income and cross-sectional differences among participants. The fraction of first-time retirement income claimants who selected a life-contingent annuitized payout stream dropped from 54% in 2000 to 19% in 2017. Over the same period, there was a sharp increase – from 9% to 58% - in the fraction of retirees making no withdrawals until the age at which they needed to begin required minimum distributions (RMDs). Among those who made an initial income selection before age 70, the annuitization rate was higher, and the decline in annuitization rates was more modest, than for those who made this selection at an older age. Those who began drawing income after age 70 were like to withdraw only the amount needed to meet the RMD. The paper also explores two potential explanations for the drop in annuitization rates since 2000: falling nominal interest rates and rising ages of income-claiming. Nominal interest rates are a key determinant of payout-per-premium dollar on newly-purchased annuities, and annuitization decisions are sensitive to this ratio. The 10-year Treasury interest rate declined by over three percentage points during the sample period. In addition, the average retirement age of TIAA participants increased by more than 1.5 years, and the average age of first-time income draws rose by nearly five years. Annuitization is much more likely among those who begin taking income before age 70, so later claiming may translate into less annuity demand. Both falling interest rates and delayed claiming appear to contribute to the observed decline in annuitization.
We thank Quentin Graham and Tai Kam for outstanding research assistance and Melinda Morrill for very helpful comments. Brown is a trustee of TIAA, Poterba is a trustee of CREF and the TIAA-CREF mutual funds, and Richardson is the Managing Director of Research at the TIAA Institute; TIAA is the provider of retirement income services that made the data available for this project. The research reported in this paper was performed pursuant to grant RDR18000003 from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, TIAA, or the NBER. Neither the U.S. government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this paper. Reference herein to any specific commercial product, process, or service by tradename, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation, or favoring by the U.S. government or any agency thereof.