This paper is based on an econometric model of retirement and saving, estimated with data for a sample of married men in the Health and Retirement Study. The model simulates how various features of a system of personal Social Security accounts would affect outcomes of interest. Outcomes include retirement, taxes paid, whether benefits are taken as an annuity or lump sum, and the level and course of benefits with age. We focus on three features of a system of personal accounts: whether personal accounts replace only a part of, or all traditional Social Security benefits; whether personal accounts are voluntary or mandatory; and the share of benefits that may be taken a lump sum rather than as an annuity. Among our findings: Under a system of partial personal accounts where retirement benefits increased by about a quarter
compared to the current system, the fraction of 62 year olds at full time work would decline by about 22 percent. If the current system were replaced completely by personal accounts, so that total retirement benefits would increase by about 75 percent, the fraction at full time work would decline by about a third. If all benefits from personal accounts could be taken as a lump sum, the fraction not retired at age 62 would fall by about 5 percentage points compared to a system where there is mandatory annuitization of benefits. Unless annuitization is mandatory, there will be substantial diversion of benefits to age 62, reducing benefits received in one’s 70s and 80s by as much as 20 percent.