Comments on Mastrobuoni, “Information and Retirement

Behavior: Stepwise Introduction of the Social Security

Statement”

Alan L. GustmanDartmouth College, MRRC and NBER

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Author’s Findings

• Statement from SSA increases knowledge– Receiving a Statement increases a worker’s probability of

being able to estimate future benefits by 20 percentage points for those who hadn’t already requested a statement; reduces error in value of benefits reported.

• But additional knowledge does not change behavior, defined as– updating retirement plans– changing benefit claiming– difference in sensitivity of retirement to incentives

provided by the SSA benefit formula

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Author Suggests Why the Statement Does Not Affect Retirement

• Workers were already behaving optimally. or • Additional information from statement isn’t

sufficient to improve uninformed workers’ retirement choices.

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Contributions of Study• Study evaluates an SSA policy to increase information.• Quasi experimental design is useful for separating treatment

group from controls. • Interesting contribution to knowledge research where:

Knowledge of Social Security or pensions determined by – cognitive ability – financial literacy – investment in learning – provision of information by public agencies and firms– learning from peers

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Methodological Contribution: Statement is an Exogenous Determinant of Knowledge

• Allows direction of causality to be determined in retirement or saving equations.

• Statement is a source of knowledge that is not due to individual choice. – This eliminates any feedback effects from dependent

retirement, saving and satisfaction variables to independent measure of knowledge.

– This feedback otherwise obscures measures of how knowledge affects outcomes.

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Some Limitations of the Study

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Statement Variable Is Embedded in a Problematic Retirement Equation

• Problems with reduced form retirement equation:– Although widely used, it does not capture major features

of the retirement hazard, e.g., retirement spike at 62; requires age 62 dummy.

– It obscures effects of individual differences in time preference and resulting liquidity constraints.

• In addition, pensions omitted from this equation.– Pension incentives, with 50% of covered HRS workers with

a DB plan, are not included in the analysis.• Result, even before statement variable is included,

not clear what the contaminated coefficients are measuring.

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Interacting Statement Variable with Other Variables in the Retirement Equation May Obscure It’s Effects

• Starting point – not clear what coefficients of key variables are measuring.

• Next -- Statement variable is interacted with key independent Social Security variables from that equation, further muddying the waters.

• Effects of Statement will differ among different groups – high vs. low discounters; by extent of DB incentives.

• But these differences are missing from reduced form equation.

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Some Recommendations

• Primary Recommendation: Embed the statement measure in a state of the art retirement model.

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Limit Retirement Analysis to Those Over Age 60

• Statement variable measured at single year of age from 55 to 69.

• For some, difference in knowledge at 55 may have little effect on retirement at 55, or at 62. – E.g., for those with DB early retirement age at 55.– E.g., for those with high time preference who will retire at

62 in any case.

• Difference in knowledge at 62 or normal retirement age may have a larger effect on retirement for those with modest time preference and no DB pension.

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Disaggregating by Gender and Family Status Might Clarify Findings

• Author includes dummies for household status.• But coefficients on statement variable are assumed

to be the same between one and two earner households, singles and couples.

• In addition, couple households and two earner households confused about dual beneficiary status, survivor benefits.

• Disaggregate – one person, two person one earner, and two earner

households– men and women.

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My Conclusions

• Effects of statement on information are believable.• It is probably also true that the statement has little

effect on retirement.• But I would like to see additional analysis before

firmly adopting that second conclusion.• Next on research and policy agenda, determine why

statement has little effect on retirement.

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What Can We Learn About Policy Effectiveness from this Study?

• Good News: when SSA mails information about expected benefits, the statement increases knowledge of benefits by those who have not contacted SSA previously.

• Bad News: If additional knowledge does not affect retirement and other behaviors, what is the advantage of better informed agents who do not act on that knowledge?

• For Researchers and Policy Makers: Need to better understand relation of statement to outcomes– That would increase understanding of how knowledge relates to

behavior.– Allow for more effective policy design.

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