Retirement Income for Surviving Spouses

Abstract

This paper reports on a study of married participants in the Oregon Public Employes Retirement System (PERS) to gain information about their retirement decisions. The study used four mail-in questionnaires in conjunction with computerized participant data. This study looks beyond the status of the couple immediately following retirement and attempts to forecast the well-being of the household, i.e., the surviving spouse, when and if a retiree predeceases the spouse. As indicated by research in labor economics, all income streams are converted to an asset or wealth variable for analysis. The results indicate that, assuming no depletion of savings by long-term illness, 65 percent of the couples can expect adequate monthly income during their retirements. Only about one-third of the participants elected any form of joint-and-survivor payout that assures lifetime income to the spouse. Significant drops in income are expected to occur in these households following the death of the retiree as average life insurance holdings are not adequate to replace the predicted drops in pension and social security payments. Overall the spouses of those who purchased life insurance could expect equivalent levels of income after the death of the retiree; however, the variance was higher among this population. The paper concludes with a discussion of the implications for the pension plan and its sponsors when a high level of popularity is observed for private alternatives. The changes spurred in Oregon's Public Employee Retirement System as a result of this investigation also are reported.