Which Option Do People Take?

At the time of retirement, all members must choose to receive their retirement allowance under one of three options.  The options are Option A, Option B and Option C.  The option that a member selects determines how much will be paid to the member each month, and what benefits will be available to beneficiaries following the member’s death.  The differences between the options is spelled out in considerable detail in the various retirement guides available here.

One of the most frequent questions asked by members as they consider retirement is, “Which option do most people take?”  Of course, this isn’t really a great way for a member to pick out a retirement option.  A member’s option selection should consider their own circumstances, their health, financial needs, and the needs of their beneficiaries.  The number of other people who have picked a particular option probably shouldn’t enter into the calculation at all.  Still, because the question is asked so frequently, and because the answer does reveal a bit about the workings of the retirement system, it seems to be worth exploring.

This analysis covers only those members who retired for Superannuation.  A future posting will look at the breakdown for Accidental Disability retirees.  Looking at members who have retired since January 1, 2005, the option selection breaks down as follows:

• 223 retirees selected Option A
• 198 retirees selected Option B
• 298 retirees selected Option C

There also seems to be a common belief that married members are more likely to pick Option C.  A closer look at the data shows that there is some truth to this idea.

• Of the retirees who picked Option A, 42% were married at the time of retirement.
• Of the retirees who picked Option B, 54% were married at the time of retirement.
• Of the retirees who picked Option C, 87% were married at the time of retirement.

Looking at members who retired prior to 2005 reveals a much different picture.  This is because the legislature authorized the adoption of a new mortality table at the end of 2004.  This changed the factors used to calculate Option B and Option C allowances.  Prior to 2005, members who selected Option B or C had their allowances reduced much more than retirees do today.  Because Option A allowances were so much higher than Option B or C, more retirees chose Option A than do today.  The breakdown for living retirees who retired prior to 2005 is as follows:

• 380 retirees selected Option A
• 122 retirees selected Option B
• 103 retirees selected Option C

Clearly, the new mortality table made Options B and C significantly more attractive to retirees.

Thanks very much for reading.  If you have any comments, or a question you’d like to see addressed in a future post, please free to email cburns@cambridgeretirementma.gov.