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

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.social security statements, retirement expectations, retirement behavior, social security incentive