The Effect of Savings Annuitization on Elderly Outcomes

• In Event: Income Sources in Retirement

Abstract

While annuities provide longevity insurance by offering a steady income in retirement, many pension systems around the world have shifted toward lump-sum withdrawals, exposing individuals to longevity and financial risk. Empirical evidence on the consequences of this shift remains limited. This project estimates the causal effect of annuitizing pension savings on post-retirement outcomes such as mortality, entrepreneurship, and reliance on government assistance. I exploit an institutional rule in Colombia’s private pension system, where workers are assigned to a specific payout type—either an annuity or a lump-sum—based on whether their accumulated savings exceed a threshold tied to the statutory minimum wage. Because this threshold varies annually and cannot be influenced by individual behavior, it generates quasi-random variation in payout assignment. Using a fuzzy regression discontinuity design and confidential administrative data on over 600,000 retirees, I isolate the effect of receiving an annuity versus a lump-sum, providing new evidence on how pension payout form shapes later-life well-being.

Author

• Tatiana Hiller, hiller@ucdavis.edu