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Imperfect Knowledge, Retirement and Saving

  • Alan L. Gustman

    (Dartmouth College and NBER)

  • Thomas L. Steinmeier

    (Texas Tech University)

Using data from the Health and Retirement Study, this paper measures knowledge about future social security and pension benefits by comparing respondent reports of their expected benefits with benefits calculated from social security earnings records and employer provided descriptions of pension plans. The knowledge measures suggest that misinformation or lack of information about retirement benefits is the norm. Those who are most dependent on social security are the least well informed, while the opposite is true for pensions. Women and minorities are also less well informed about their retirement benefits. Those who engage in planning activities are somewhat better informed than those who do not, but with the exception of having requested a social security earnings record, the effects of planning activities on knowledge are modest. In descriptive and reduced form equations for planned and actual retirement saving, there is at best a modest relation of knowledge measures to planned and actual retirement and to nonpension, nonsocial security wealth as a share of lifetime earnings. Individuals who over estimate their benefits are likely to retire sooner than they planned, but the measured effects are again relatively modest.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp012.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp012.

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Length: 61 pages
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:mrr:papers:wp012
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  1. Patrick J. Bayer & B. Douglas Bernheim & John Karl Scholz, 2009. "The Effects Of Financial Education In The Workplace: Evidence From A Survey Of Employers," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 605-624, October.
  2. James H. Stock & David A. Wise, 1988. "Pensions, The Option Value of Work, and Retirement," NBER Working Papers 2686, National Bureau of Economic Research, Inc.
  3. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
  4. B. Douglas Bernheim & Daniel M. Garrett, 1996. "The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households," Working Papers 96007, Stanford University, Department of Economics.
  5. Alan L. Gustman & F. Thomas Juster, 1995. "Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis," NBER Working Papers 4996, National Bureau of Economic Research, Inc.
  6. Sewin Chan & Ann Huff Stevens, 2001. "Retirement Incentives and Expectations," NBER Working Papers 8082, National Bureau of Economic Research, Inc.
  7. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-92, May.
  8. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  9. B. Douglas Bernheim, 1987. "Social Security Benefits: An Empirical Study of Expectations and Realizations," NBER Working Papers 2257, National Bureau of Economic Research, Inc.
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