Do Older Adults Accurately Forecast Their Social Security Benefits?
Abstract
How accurate are older people’s expectations about their future Social Security benefits? Using panel data from the Health and Retirement Study, we compare respondents’ observed Social Security claiming ages and benefits with subjective expectations provided during their 50s and early 60s. We find that, while older adults generally have accurate expectations about their claiming age, they underestimate their annual Social Security income by approximately $1,896 (11.5 percent) on average. However, both accuracy and precision increase with age, and the forecast error for people in their early 60s is not statistically different from zero. Exploiting plausibly exogenous variation in the mailing of Social Security statements, which contain personalized information about future benefits, we show that information provision reduces the forecast error in annual income by $344 (2.1 percent of the average benefit).
JEL Codes
E21, H55, J14, J26
Acknowledgements
We thank Priyanka Anand for helpful discussion. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
At least one co-author has disclosed additional relationships of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w31023.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Grant M. Seiter
Senior Research Associate
I’m a Senior Research Associate for Economic Policy Studies at the American Enterprise Institute (AEI). My area of research includes federal tax and budget policy, labor economics, and financial markets.