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Do better–informed workers make better retirement choices? A test based on the Social Security Statement

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  • Giovanni Mastrobuoni

Abstract

In 1995, the Social Security Administration started sending out the annual Social Security Statement. It contains information about the worker’s estimated benefits at the ages 62, 65, and 70. We use this unique natural experiment to analyze the retirement and claiming decision making. First, we find that, despite the previ- ous availability of information, the Statement has a significant impact on workers’ knowledge about their benefits. These findings are consistent with a model where workers need to gather costly information in order to improve their retirement deci- sion. Second, we use this exogenous variation in knowledge to analyze the optimality of workers’ decisions. We do not find an overall improvement in workers’ retirement behavior, but there are some changes among particular groups. Workers aged 62 and 65 become less sensitive to Social Security Incentives. Age 62 and 65 are the two ages at which the retirement benefits are reported in the Statement, which suggests that some workers may use them as focal points. Additionally, we find evidence that before the Statement was introduced uninformed workers, who are more likely to be low–educated and black, made, on average, worse retirement decisions, and that workers with a dependent spouse usually disregarded their own spouse’s benefits in their calculations. The information contained in the Statement appears to have helped both groups, though with the important exception of black workers.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 51.

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Length: 58 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:cca:wpaper:51

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Keywords: social security statements; retirement expectations; retirement behavior; social security incentives;

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  1. Giovanni Mastrobuoni, 2006. "Labor Supply Effects of the Recent Social Security Benefit Cuts: Empirical Estimates Using Cohort Discontinuities," Working Papers 893, Princeton University, Department of Economics, Industrial Relations Section..
  2. Annamaria Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," CeRP Working Papers 46, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  3. COILE, Courtney & DIAMOND, Peter & GRUBER, Jonathan & JOUSTEN, Alain, 2000. "Delays in claiming social security benefits," CORE Discussion Papers 2000029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. repec:att:wimass:9430 is not listed on IDEAS
  5. McCall, Brian P, 1994. "Testing the Proportional Hazards Assumption in the Presence of Unmeasured Heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 321-34, July-Sept.
  6. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
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