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Social Security Literacy and Retirement Well-Being

  • Hugo Benítez-Silva

    (SUNY-Stony Brook)

  • Berna Demiralp

    (Old Dominion University)

  • Zhen Liu

    (University at Buffalo)

We build upon the growing literature on financial literacy, which studies the prevalence of lack of knowledge about various financial issues, and analyze how much people know about the Social Security rules using a small pilot survey conducted in 2007, and a follow-up and extended survey funded by MRRC conducted in December of 2008. We then assess the consequences of the apparent prevalence of lack of information by individuals about the rules governing the Social Security system using a realistic and empirically-based life-cycle model of retirement behavior under uncertainty. We investigate the individual’s retirement and savings decisions under incomplete information and unawareness, in which a portion of the population does not know some or all of the rules of the system. We compare the outcomes in these cases to the outcome under full information, computing the welfare gain resulting from the acquisition of information regarding the Social Security system. Our analysis can illuminate the need for policies that foster knowledge of the system, which can improve welfare, and can result in better policy outcomes.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp210.

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Length: 36 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:mrr:papers:wp210
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