Research, Statistics, & Policy Analysis
Retirement Research Consortium
The Retirement Research Consortium (RRC) consists of three multidisciplinary centers housed in three separate institutions (Boston College, the University of Michigan, and the National Bureau of Economic Research) and is funded through cooperative agreements with the Social Security Administration. SSA awarded approximately $7.5 million to the RRC in FY2009, when the current 5-year award was made. Funding is expected to continue at that level for each of the remaining years of the award.
The RRC has three main goals:
- Conduct research and evaluation on a wide array of topics related to Social Security and retirement policy,
- Disseminate information on Social Security and retirement issues relevant to policy makers, researchers, and the general public, and
- Train scholars and practitioners in research areas relevant to Social Security and retirement issues.
To meet these goals, the centers perform many activities. They conduct research, prepare policy briefs and working papers, hold an annual conference, and provide research and training support for young scholars. Links to recent RRC research are provided below. For further information about RRC activities, affiliated institutions, or individual researchers, please visit the Web sites of the respective institutions:
- Center for Retirement Research at Boston College
- Michigan Retirement Research Center
- National Bureau of Economic Research
Recent RRC Research
View RRC Research by Priority Research Area | View Archived Research
October 2009
Buffering Shocks to Well-Being Late in Life
by Matthew D. Shapiro
SSA Project # UM09-05 • Macroeconomic Analyses of Social Security
Michigan Retirement Research Center Working Paper 2009-211
Consumption provides a comprehensive measurement of economic well-being. This research shows that consumption is well-insured with respect to health status and widowing. Using data from the Health and Retirement Study (HRS) and its CAMS supplement, it shows that consumption responds little to changes in health status even though adverse health generates substantial out-of-pocket expenses. Similarly, the effect of widowing on consumption, though substantial, is not strongly driven by changes in economic resources. Men experience little loss of monetary resources when being widowed. Women have the same overall loss in consumption as men when being widowed despite greater declines in economic resources. Hence, despite the adverse consequences for income and wealth female widows, women experience no greater drop in consumption from losing a spouse than do men.
by Richard Kopcke, Francis M. Vitagliano, and Zhenya S. Karamcheva
SSA Project # BC09-06 • Wealth and Retirement Income
Center for Retirement Research at Boston College Working Paper 2009-27
As the role of 401(k) and similar defined-contribution plans continues to expand in our retirement system, plan participants are paying more of the cost of financing their retirement income. This study analyses the trading costs and fees of the 100 largest domestic equity mutual funds held in defined-contribution pension plans for the years 2004 through 2008. The pricing of the actively managed funds in this sample cost the average plan 0.50 of a percentage point or more in annual returns. By shifting investment options from managed mutual funds to exchange-traded funds (ETFs) or commingled trusts, 401(k) plans can align the fees they pay more closely with the expense of the services they use. This realignment can allow an average plan to reduce its administration and management fees between 0.20 and 0.40 percent of assets. In addition, the shift to ETFs and commingled trusts that hold ETFs can reduce average trading costs 0.50 percent of assets or more for participants holding managed equity mutual funds. The fees and trading costs of the domestic equity funds in this sample are not correlated with the performance of the funds. The funds with the greatest expenses tended to divide evenly between those funds that outperformed and those that underperformed the market by the largest margins.
Financial Literacy and Financial Sophistication in the Older Population: Evidence from the 2008 HRS
by Vilsa Curto, Annamaria Lusardi, and Olivia S. Mitchell
SSA Project # UM09-10 • Wealth and Retirement Income
Michigan Retirement Research Center Working Paper 2009-216
This paper analyzes new data on financial literacy and financial sophistication from the 2008 Health and Retirement Study. We show that financial literacy is lacking among older individuals and for the first time explore additional questions on financial sophistication which proves even scarcer. For this sample of older respondents over the age of 55, we find that people lack even a rudimentary understanding of stock and bond prices, risk diversification, portfolio choice, and investment fees. In view of the fact that individuals are increasingly required to take on responsibility for their own retirement security, this lack of knowledge has serious implications.
by Alan L. Gustman, Thomas L. Steinmeier, and Nahib Tabatabai
SSA Project # UM09-09 • Wealth and Retirement Income
Michigan Retirement Research Center Working Paper 2009-206
Our findings suggest that although the consequences of the decline in the stock market are serious for those approaching their retirement, the average person approaching retirement age is not likely to suffer a life changing financial loss from the stock market downturn of 2008–2009. Similarly, the likely effects of the stock market downturn on retirements have been greatly exaggerated. If there is any postponement of retirement due to stock market losses, on average it will be a matter of a few months rather than years. Counting layoffs, retirements may be accelerated rather than reduced. Background information from our forthcoming book also corrects misperceptions about pension holdings of the retirement age population. Pension coverage is much more extensive than is usually recognized. Over three quarters of the households with a person ages 51 to 56 in 2004 are currently covered by a pension, or have enjoyed pension coverage in the past. Pension wealth accounts for 23 percent of the total wealth of those on the cusp of retirement. For those nearing retirement age, defined contribution plans remain immature. As a result, almost two thirds of pension wealth held by those 51 to 56 in 2004 is in the form of a defined benefit plan. Lastly, women approaching retirement age are more likely to be covered by a pension than are women from earlier cohorts and they account for a significantly larger share of household pension wealth.
How Seniors Change Their Asset Holdings During Retirement
by Rudolph G. Penner, Karen Smith, and Mauricio Soto
SSA Project # BC09-09 • Wealth and Retirement Income
Center for Retirement Research at Boston College
We use 1998–2006 waves of the Health and Retirement Study (HRS) to investigate how households change their asset holdings at older ages. We find a notable increase in the net worth of older households between 1998 and 2006, with most of the growth due to housing. Our results indicate that, through 2006, older households did not spend all their capital gains. This asset accumulation provides older households with a financial cushion for the turbulence experienced after 2007. The wealth distribution is highly skewed, and the age patterns of asset accumulation and decumulation vary considerably by income group. High-income seniors increase assets at older ages. Middle-income seniors reduce their assets in retirement, but at a rate that for most seniors will not deplete assets within their expected life. Many low-income seniors accumulate fewer assets and spend their financial assets at a rate that will mostly deplete them at older ages, leaving low-income seniors with only Social Security and DB pension income at older ages.
The Impact of Pension Policy on Older Adults' Life Satisfaction: An Analysis of Longitudinal Multilevel Data
by Esteban Calvo
SSA Project # BC09-D5 • Demographic Research
Center for Retirement Research at Boston College
This study assesses the influence of old-age pension policy on older adults' life satisfaction, and examines factors that shape this relationship. It theorizes that two distinct dimensions capture variation in the type of pension policy: individualization of risk (as opposed to socialization, or pooling, of risk) and redistribution of resources (that is, poverty prevention through income redistribution mechanisms such as noncontributory pensions). To empirically evaluate the presence of these two dimensions and to assess their influence of life satisfaction among older adults, this study analyzes data for 126,560 adults age 45 and over living in 91 countries over the period 1981–2008. Using principal component factor analysis, it finds support for the two-dimensional model of pension policy. Next, using three-level hierarchical linear regression, this study assesses the effects of pension policy individualization and redistribution on life satisfaction, generating three additional major findings. First, redistribution increases life satisfaction, but individualization—on average—has no significant effect on life satisfaction. Thus, the potential impact of individualization (whether positive or negative), and of the associated increased risk, choice, and opportunities for return, has been clearly overstated in theoretical debates on pension policy privatization. Second, the relationship between pension policy and life satisfaction is contingent on the macrosocial context. Specifically, individualization that takes place in more affluent societies has beneficial impact on life satisfaction, while individualization unfolding in contexts of material scarcity has detrimental impact on life satisfaction. Further, the overall beneficial effects of redistribution on life satisfaction are substantially higher in the context of traditional cultures and lower in the context of secular-rational cultures. A third finding is that governmental commitment to social security (i.e., government expenditures on social security as a percentage of total government expenditures) also shapes the relationship between the type of pension policy and life satisfaction: Higher government commitment to social security substantially improves the life satisfaction outcomes of individualization. Findings from this study are used to integrate and advance theory on comparative public policy and the larger macro-social context shaping subjective wellbeing. Policy implications for pension reform are discussed, highlighting redistribution of resources and alleviation of need as more efficient avenues to increase older adults' life satisfaction than privatization or pooling of risk.
Insult to Injury: Disability, Earnings, and Divorce
by Perry Singleton
SSA Project # BC08-S7 • Demographic Research
Center for Retirement Research at Boston College Working Paper 2009-25
This study examines the effect of work-limiting disabilities on the likelihood of divorce. Theoretically, the effect depends on the disability hazard at the time of onset and the impact of disability on marital value. The theory therefore implies, based on a set of empirically-supported premises, that the effect of disability on divorce should decrease with age, increase with education, and increase with disability severity. Data from the Survey of Income and Program Participation support these predictions. The effect of a work-preventing disability is greatest among young, educated males, increasing the divorce hazard by 13.3 percentage points.
The Level and Risk of Out-of-Pocket Health Care Spending
by Michael D. Hurd and Susann Rohwedder
SSA Project # UM09-08 • Wealth and Retirement Income
Michigan Retirement Research Center Working Paper 2009-218
The Health and Retirement Study (HRS) is a long-running panel survey with good measures of economic status, so it is the pre-eminent data set for studies about the economic status of the older population and economic preparation for retirement. However, the HRS expends considerably fewer resources on the measurement of out-of-pocket spending than other surveys such as the Medical Expenditure Panel Survey (MEPS) and the Medicare Current Beneficiary Survey (MCBS), which may result in its having relatively less accurate measurement of such spending. We compare the level and distribution of out-of-pocket spending in the HRS with similar measures in MEPS and MCBS in the population aged 65 or older. We find that the measures of out-of-pocket spending in the HRS are about 50% greater than those in MEPS at the mean, and very much greater at the upper points of the distribution. HRS and MCBS are in better agreement, although the HRS is higher at the mean and at the top of the distribution. The implication is that the level and risk of out-of-pocket spending on health care are exaggerated in HRS. Observation error in the HRS measurement relative to MEPS and MCBS is to be expected, but this does not explain the apparent bias. We conclude that researchers who use HRS 2004 or earlier should examine health care spending carefully, even on a case-by-case basis.
Marking Social Security's Open Group Liability to Market
by Paul A. Koehler and Laurence J. Kotlikoff
SSA Project # UM09-03 • Social Security and Retirement
Michigan Retirement Research Center Working Paper 2009-217
This paper marks Social Security's open group liability to market taking into account the riskiness of its aggregate benefit payments and tax receipts. The open group liability references the present value of the system's net cash flow from now through the indefinite future. The latest Social Security Trustees Report (2009) estimates this liability at $15.1 trillion. But the discounting used to form this estimate takes no explicit account of risk and, therefore, potentially misprices both future benefits and taxes. Our risk adjustment is based on Ross (1976) Arbitrage Pricing Theory. Specifically, we treat the growth rates of the system's aggregate benefits and taxes as implicit securities that are spanned by the returns on marketed securities. This procedure focuses, then, on aggregate flows. This is quite different from the micro-based aggregation procedures underlying the Trustees Report, which requires highly detailed analysis of the cash flows arising from the program's numerous benefit and tax provisions. Our pricing of Social Security's infinite horizon net liability builds on prior independent work by Blocker, Kotlikoff, and Ross (2009) and Geanakoplos and Zeldes (2009). Both papers attempt to risk-adjust Social Security liability measures, albeit two different liability measures, which are, in turn, different from the liability measure considered here. Blocker, et al. (2009) considers the liability to current workers of paying their future benefits net of receiving their future taxes assuming the system continues to operate under its current rules. Geanakoplos, et al. (2009) consider the "shutdown liability" (also known as the "maximum transition cost") of the current system; i.e., they value the system's accrued benefit liability. Our results, which we view as preliminary, suggest that the market value of Social Security's open group liability may be many times larger than the $15.1 trillion stated in the Trustees' Report. Unlike Blocker, Kotlikoff, and Ross (2009), this discrepancy between our financial valuation and Social Security's does not reflect differences in the value assumed for the safe rate of return. To control for this factor, we simply follow Social Security (and Geanakoplos, et. al., 2009) in assuming a 2.9 percent safe real rate of discount. We also find that the precise marketed assets used to price future Social Security benefits and taxes can significantly alter the estimate of the open group liability.
Medicare Part D and the Financial Protection of the Elderly
by Gary V. Engelhardt and Jonathan Gruber
SSA Project # BC09-10 • Program Interactions
Center for Retirement Research at Boston College Working Paper 2009-24
We examine the impact of the expansion of public prescription drug insurance coverage from Medicare Part D on the elderly and find evidence of substantial crowd-out. Using detailed data from the 2002-6 waves of the Medical Expenditure Panel Survey (MEPS), we estimate that the extension of Part D benefits resulted in 75% crowd-out of prescription drug insurance coverage and 33%-50% crowd-out of prescription drug expenditures of those 65 and older. Part D is associated with relatively small reductions in out-of-pocket spending. This suggests that the welfare gain from protecting the elderly from out-of-pocket spending risk through Part D has been small.
Mortality Contingent Claims: Impact of Capital Market, Income, and Interest Rate Risk
by Wolfram Horneff and Raimond Maurer
SSA Project # UM09-12 • Wealth and Retirement Income
Michigan Retirement Research Center Working Paper 2009-222
In this paper, we consider optimal insurance, portfolio allocation, and consumption rules for a stochastic wage earner with CRRA preferences whose lifetime is random. In a continuous time framework, the investor has to decide among short and long positions in mortality contingent claims a.k.a. life insurance, stocks, bonds, and money market investment when facing a risky stock market and interest rate risk. We find an analytical solution for the complete market case in which human capital is exactly priced. We also extend the analysis to the case where income is unspanned. An illustrative analysis shows when the wage earner's demand for life insurance switches to the demand for annuities.
Proximity and Coresidence of Adult Children and their Parents: Description and Correlates
by Janice Compton and Robert A. Pollak
SSA Project # UM09-18 • Demographic Research
Michigan Retirement Research Center Working Paper 2009-215
The ability of family members to engage in intergenerational transfers of hands-on care requires close proximity or coresidence. In this paper we describe and analyze the patterns of proximity and coresidence involving adult children and their mothers using data from the National Survey of Families and Households (NSFH) and the U.S. Census. Although intergenerational coresidence has been declining in the United States, most Americans live within 25 miles of their mothers. In both the raw data and in regression analyses, the most robust predictor of proximity of adult children to their mothers is education. Individuals are less likely to live near their mothers if they have a college degree. Virtually all previous studies have considered coresidence alone, or else treat coresidence as a limiting case of close proximity. We show that this treatment is misleading. We find substantial differences in the correlates of proximity by gender and marital status, indicating the need to model these categories separately. Other demographic variables such as age, race and ethnicity also affect the probability of coresidence and close proximity, but characteristics indicating a current need for transfers (e.g., disability) are not correlated with close proximity.
by Giovanni Mastrobuoni
SSA Project # BC08-S6 • Social Security and Retirement
Center for Retirement Research at Boston College Working Paper 2009-23
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. I use this unique natural experiment to analyze the retirement and claiming decision-making. First, I find that, despite the previous 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 decision. Second, I use this exogenous variation in knowledge to analyze the optimality of workers' decisions. Several findings suggest that workers do not change their retirement behavior: i) Workers do not change their expected age of retirement after receiving the Statement; ii) monthly claiming patterns do not show any change after the introduction of the Social Security Statement; iii) workers do not become more sensitive to Social Security incentives after receiving the Statement. Either, workers are already behaving optimally, or the information contained in the Statement is not sufficient to improve their retirement behavior.
Social Security and the Joint Trends in Labor Supply and Benefits Receipt among Older Men
by Bo McInnis
SSA Project # BC08-S5 • Social Security and Retirement
Center for Retirement Research at Boston College Working Paper 2009-22
Using data from the Current Population Surveys, we find an increase in the fraction of older American men who worked without receiving Social Security retirement benefits and a decline in the fraction of men who claimed benefits without working during the period 1980–2006. Using bivariate probit regressions, we find that an increase in Social Security's normal retirement age decreased labor force participation rate regardless of benefits receipt status; that an increase in the delayed retirement credit increased benefit receipt regardless of labor force status; and that labor force participation and claiming Social Security benefits are strongly and negatively correlated.
Three Empirical Papers on Medicaid, Medicare, and Long-Term Care Insurance
by Nadia Greenhalgh-Stanley
SSA Project # BC08-D2 • Wealth and Retirement Income
Center for Retirement Research at Boston College
This dissertation consists of three empirical essays investigating the relationship between the government provision of long-term care services through Medicaid and Medicare and the housing and portfolio decisions of the elderly. In the first essay, I exploit state-by-time variation in Medicaid's treatment of owner-occupied housing assets through the adoption of estate recovery programs to measure the impact of these law changes on elderly housing and asset decisions. In the second essay, I provide empirical evidence on the extent to which long-term care insurance affects the housing and living arrangements of the elderly by examining plausibly exogenous changes in the supply of long-term care insurance through the Medicare program that occurred in the late 1990's. In the third essay, I examine the relationship between the 1988 increases in the asset and income spousal protections and the wealth holdings of widows. The first essay examines the impact of state adoption of estate recovery programs on housing and asset decisions among the elderly. Adoption of estate recovery programs changed the owner-occupied housing safety net by making the house eligible for recovery by the government, which increased the implicit tax of holding owner-occupied housing. Using data from 1993–2004 in the Health and Retirement Study on elderly individuals, I find that state adoption of estate recovery programs makes the elderly decrease homeownership at death by 20 percentage points off a base homeownership rate of 60%, making them 33% less likely to own their homes at death and has a small impact on homeownership rates while the recipients are alive. Also, there is evidence that trusts are treated as a substitute to housing in order to preserve assets and carry out bequest motives at death. Adoption of these programs decreased the housing share of the elderly wealth portfolio. The second essay provides estimates on the extent to which the supply of long-term care insurance affects the housing and living arrangements of the elderly. My estimates indicate that living arrangements are quite responsive to home health care benefits. The estimated elasticity of shared living to benefits is over all elderly and for widowed elderly. However, these benefits have little impact on household headship among the elderly. This suggests that the bulk of the shared-living response occurred through co-residents living in elderly households. There is some weak evidence that increases in benefits raised elderly homeownership. The final essay estimates the impact of increases in the spousal impoverishment protections from the Medicare Catastrophic Coverage Act of 1988. I find that widows after 1988 held 29% more total wealth and 14% more financial wealth than those widowed before 1988. I also find that widows after 1988 are more likely to own their homes and are less likely to live in a home owned by a relative compared to those widowed prior to the 1988 law change.
An Update on 401(k) Plans: Insights from the 2007 Survey of Consumer Finance
by Alicia H. Munnell, Richard Kopcke, and Francesca Golub-Sass
SSA Project # BC09-04 • Wealth and Retirement Income
Center for Retirement Research at Boston College Working Paper 2009-26
The maturation of the 401(k) system and the enactment of the Pension Protection Act of 2006, which made 401(k) plans easier and more automatic, were expected to enhance the role that 401(k)s played in the provision of retirement income. So, originally, the release of the Federal Reserve's 2007 Survey of Consumer Finances (SCF) seemed like a great opportunity to re-assess 401(k)s. But the 2007 SCF reflects a world that no longer exists. Interviews were conducted between May and December when the Dow Jones was at 14,000 (the peak was October 9, 2007) and housing prices were only slightly off their peak. Given the collapse of the financial markets and the economy, this paper uses the 2007 SCF data as a starting point in evaluating the condition of 401(k)s and the factors that affect participation and contributions and relies on more recent data and estimates to paint a full and current picture. The analysis proceeds as follows. The first section describes the evolution of 401(k) plans and how the Pension Protection Act of 2006 would be expected to improve the performance of these plans. The second section uses data from the 2007 SCF and other sources to update previous findings on participation, contribution levels, investments, and withdrawals. The third section explores in more depth the role how individual characteristics and plan design affect participation and contributions in 401(k) plans. The fourth section then projects how the events of 2008 have affected various aspects of 401(k) plans. The final section concludes that whereas 401(k) plans were showing some improvement in 2007 and the analysis of participation and contribution decisions confirmed the trend toward auto-enrollment and the maturation of the system, the events of 2008 highlight the limitations of 401(k) plans in serving as the only supplement to Social Security.
The Wealth of Older Americans and the Sub-Prime Debacle
by Barry Bosworth and Rosanna Smart
SSA Project # BC09-07 • Weath and Retirement Income
Center for Retirement Research at Boston College Working Paper 2009-21
This study explores the consequences of the housing price bubble and its collapse for the wealth of older households. We utilize micro survey data to follow the rise in home values to 2007, observing which households enjoyed home price appreciation and how they responded in terms of equity withdrawal. We then use the SCF survey data on wealth holdings from 2007 in combination with national price indexes to simulate the magnitude and distribution of wealth loss from the 2008–9 financial crisis. The collapse of the housing market triggered a broad decline of asset prices that greatly reduced the wealth of all households. While older households mitigated their real estate and equity losses with relatively stable fixed-value assets and pension programs, no demographic group was left unscathed. Prior to the financial crisis, our and other studies had concluded that the current baby-boom cohort of near retirees were surprisingly well-prepared for retirement compared to similarly-aged households over the past quarter century. Unless there is a strong recovery of asset values in the next few years, that favorable assessment is no longer true.
Work Ability and the Social Insurance Safety Net in the Years Prior to Retirement
by Richard W. Johnson, Melissa M. Favreault, and Corina Mommaerts
SSA Project # BC09-15 • Program Interactions
Center for Retirement Research at Boston College Working Paper 2009-28
A patchwork of public programs—primarily Social Security Disability Insurance, workers' compensation, Supplemental Security Income, and veterans' benefits—provides income supports to people who are unable to work. Yet, questions persist about the effectiveness of these programs. This report examines the economic consequences of disability in the years leading to retirement. Using data from the Health and Retirement Study, we follow a sample of Americans age 51 to 55 in 1992 until age 64, just before qualifying for full Social Security retirement benefits, and observe their disability status, disability benefit receipt, and income every other year. Our multidimensional disability measure combines information from multiple questions about self-assessed work disability, overall health status, limitations with activities of daily living, functional impairments, and depression. The results underscore the precarious financial state of most people approaching traditional retirement age with disabilities. Disability rates roughly double as people age from 55 to 64. Fewer than half of people who meet our disability criteria ever receive disability benefits in their fifties or early sixties. Benefit receipt rates are much higher among those with the most severe disabilities, suggesting that benefits are targeted to those least able to work, but women are less likely than men to receive benefits, even when models control for disability severity. Poverty rates for people who collect disability benefits in their fifties and early sixties are more than three times as high after benefit receipt than before disability onset.
