Description: Outlines a collective structure that can be used to convert a lump sum payout into a lifetime income stream, with a 2% COLA that is contingent on funded status and with a smoothed pricing for the annuity conversion factor.

Description: Retirement income security under defined contribution plans depends upon sufficient savings and decumulating that savings so it provides an adequate income throughout retirement. Investment risk and longevity risk inherently complicate the latter task. The economic rationale for annuitization is clear in this context. However, annuitization rates have historically been very low, a phenomenon that is still not well understood. If retirees are making “rational” decisions based on full information, if their choices are consistent with the pursuit of their financial priorities, then low annuitization rates are not an issue for concern. In this case, retirees who annuitize and retirees who do not must have different financial priorities. However, research by the TIAA Institute shows that the decision to not annuitize is inconsistent with the stated financial priorities of most non-annuitants. It appears that non-annuitants do not und erstand that annuitization would address their financial priorities for retirement.

Description: Discussion about the pros and cons of providing lifetime income options in defined contribution plans, and about the pros and cons of annuitization vs. structured payouts. Discussion triggered by an SOA research report authored by Steve Vernon.