Comments on Mastrobuoni, “Information and Retirement Behavior: Stepwise Introduction of the Social Security Statement” Alan L. Gustman Dartmouth College, MRRC and NBER 1

2 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

3 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.

4 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

5 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.

6 Some Limitations of the Study

7 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.

8 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.

9 Some Recommendations Primary Recommendation: Embed the statement measure in a state of the art retirement model.

10 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.

11 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.

12 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.

13 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. 13