All else being equal, why do some people choose a lump sum distribution while others opt for a systematic withdrawal?
It's an increasingly important question as worries grow over sustainable streams of income and the possibility of outliving ones assets.
The answer initially appears quite simple—plan design. But it quickly gets complicated from there.
As the Employee Benefit Research Institute notes, it's both a matter of national retirement policy and a key to understanding the potential role of plan design and education in influencing individual decision-making.
"Defined benefit plan rules or features result in very different annuitization rates in defined benefit plans," EBRI writes in its latest issue brief, titled Annuity and Lump-Sum Decisions in Defined Benefit Plans: The Role of Plan Rules. "In fact, the results show that the rate of annuitization varies directly with the degree to which plan rules restrict the ability to choose a partial or lump-sum distribution."
This study shows that annuitization rates vary significantly across these different plan types, which makes any attempt to combine the annuitization rates across these different plan types uninformative.
