Social Security Statements Not Changing Behaviors

To aid workers in planning for retirement, the Social Security Administration (SSA) started an initiative in 1995 mailing out personalized annual statements that provided estimates of an individual’s monthly benefit at various claiming ages. 

A brief published by the Center for Retirement Research (CRR) at Boston College summarizes studies that have investigated whether the statement makes workers better informed about their benefits and whether it changed their behavior. According to the brief, SSA funded a series of surveys between 1998 and 2004 that supported the notion that the statement increased knowledge and improved retirement planning.

Two-thirds of respondents in the final 2004 survey recalled receiving the statement, and those who did thought it provided valuable information. In addition, these respondents were more knowledgeable about their benefits than those who did not recall receiving a statement. A later survey found that, of those age 55 and older who recalled receiving the statement, more than 40% also said they used the information in planning their retirement.

The CRR brief says studies by Giovanni Mastrobuoni and Andrew Biggs identified a far more nuanced relationship between the statement and what workers know. These studies assessed the effect of the mailings on workers approaching retirement using the Health and Retirement Study (HRS), a nationally representative biennial survey of older Americans.  Mastrobuoni’s analysis found that the mailings had little effect on the benefit knowledge of workers who contact SSA directly for benefits information, but the statement dramatically improved the knowledge of those who did not contact SSA. 

Before receiving the mailings, not contacting SSA reduced the likelihood that a worker could estimate his Social Security benefit at his expected retirement age, controlling for other factors that affect this result, by 26 percentage points. After mailings, the effect of not contacting SSA was cut by more than one-third, from 26 to 16 percentage points. Mastrobuoni also found that the statement increased the accuracy of benefit estimates—primarily but not exclusively among workers who did not contact SSA for benefits information.

NEXT: Does the SSA statement change behavior?

The brief notes that after 1995, when workers began receiving annual statements, the share of 62-year-old workers claiming benefits at 62 declined sharply. The 2004 SSA survey reported that one-third of the respondents who recalled receiving a statement said that it led them to “reconsider” their retirement date. “This finding suggests that the Statement and the information it contained about the effect of claiming later on monthly benefits could have contributed to the striking change in early claiming behavior,” Steven A. Sass writes in the brief. 

However, Mastrobuoni’s study found no change in behavior associated with receipt of the statement. It found no uptick in workers changing their expected claiming age. Controlling for several factors, Mastrobuoni’s study found that the statement had no effect on the age workers claimed.

The CRR brief notes that neither the Biggs nor Mastrobuoni studies assessed whether the statement improved worker knowledge about the increase in monthly benefits should they delay claiming. But a survey conducted by Jeffrey Liebman and Erzo Luttmer in 2008 found the respondents, who had been receiving annual statements for nearly a decade, were reasonably well-informed about the incentive. Eighty-five percent of the respondents knew that claiming later increases monthly benefits, and they provided reasonably accurate estimates about how much monthly benefits would rise.

“The key takeaway from these studies is that workers receiving the Statement generally know that claiming later would increase their monthly benefit; but no evidence exists that the Statement changes when they claim,” Sass writes.

According to the CRR brief, a 2010 survey by Matthew Greenwald, Arie Kapteyn, Olivia S. Mitchell, and Lisa Schneider found that even though workers know they could increase their monthly benefit by working longer, essentially none of the respondents said they had pushed back their retirement age.

Sass says the major impediment to the Social Security Statement’s ability to help workers prepare for retirement could be what Greenwald et al. call “a lack of knowledge about the key factors necessary for comprehensive retirement planning.” These factors include knowing: 1) how much income they need to “maintain a good standard of living;” 2) how much they will get from Social Security; 3) how much they need from savings and other sources to complement what they get from Social Security; and 4) what they could do to get what they need, such as working longer.

A comprehensive retirement planning framework would show workers that pushing back their retirement age does more than raise their monthly Social Security benefit; it also reduces the savings they need at retirement, as the higher monthly benefit reduces the income they need from savings, and it shortens the length of time their savings need to provide that income, the brief notes. Retiring later also increases the savings that workers will have at retirement, as it gives them more time to save and gives their savings more time to accumulate investment income. 

“The lack of such a larger retirement planning framework could be why the Statement mailings seem not to have prompted changes in behavior,” Sass concludes.

The brief, “Does the Social Security Statement Add Value?” may be downloaded from here.