Recent Trends in Retirement Income Choices at TIAA: Annuity Demand by Defined Contribution Plan Participants

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.