PROspective Vol I No VII July 2010
Dr. Biggs is doing a project for the Financial Literacy Center on assessing the effectiveness and improving the Social Security statements we all receive.
The mission of the Financial Literacy Center is to develop and test innovative programs to improve financial literacy and promote informed financial decisionmaking.
With support from the Social Security Administration, the Center was established in October 2009 by the RAND Corporation, Dartmouth College, and the Wharton School of the University of Pennsylvania in order to develop educational tools and programs that help individuals prepare for their long-term financial stability.
Chuck Miller: The Social Security Administration (SSA) began issuing statements to future recipients in 1995. Why?
Dr. Biggs: The technical purpose for the Social Security Statement is to allow individuals to correct any errors in their earnings record, which is used by Social Security to calculate their benefits. If a recipient of the Statement sees an error in their reported earnings, which does happen from time to time, they can report it to SSA and it will be corrected.
In addition, though, the Statement contains a variety of other information designed to enhance Americans’ knowledge of the program and of the benefits they can expect to receive.
CM: What information is currently contained in the statements?
AB: The Statement describes the benefits that Social Security provides and certain conditions that may apply to specific individuals – such as the Retirement Earnings Test and the Government Pension Offset, and provides some details on the financing challenges facing the system.
In addition, the Statement contains personalized information detailing each individual’s earnings and payments into the program and the benefits he or she may become entitled to through disability or retirement, or the benefits the individual’s surviving spouse or children may receive upon his or her death.
This personalized information serves two key roles. First, it allows individuals to correct any errors in their earnings record, which could affect their benefit entitlements. Second, it provides an estimate of their future benefits, which helps in planning for how much to save and when to retire.
CM: The public seems to lack knowledge about Social Security benefits. A recent study* showed about half of those surveyed knew the minimum age to receive retirement benefits is 62, and in 2007 about a quarter knew the maximum age of 70. How might the statements improve knowledge of Social Security?
AB: The Statement is likely the main source of information on Social Security benefit rules for the typical American. It is mailed to every working age individual each year and contains customized information regarding their own benefit eligibility, so it offers them information that would be hard to obtain anywhere else – and it does so on a per-person cost that produces good value for the taxpayer.
The challenge is to present this information in ways that ordinary individuals can understand and retain. This can be difficult, given the complexities of the program and the large amount of information the Statement conveys. One of the advantages of research in financial literacy and behavioral economics is that it may suggest ways in which the same information can be presented in more understandable terms.
CM: What changes might you envision?
AB: It is hard to say how the Statement might be improved prior to finishing my project, and we should bear in mind that SSA regularly reviews the Statement looking for ways to improve it. In the past several years, for instance, SSA has started including new inserts for older workers about how to think about when to retire, as well as inserts for younger individuals telling them about the benefits of saving for retirement. So any improvements I suggest should be viewed in the context of many other efforts to keep the Statement current and improve it for the future.
CM: You’re on a panel in an upcoming conference discussing married women and Social Security. Do married women have particular issues regarding Social Security?
AB: Women are generally better treated by Social Security than men, as their lower earnings benefit from the program’s progressive benefit structure and their longer life spans benefit them from the fact that Social Security pays benefits as an annuity that lasts as long as you live. But despite this, women are often presented with poor incentives to participate in the paid workforce because they could receive larger benefits as a spouse or as a widow than based on their own earnings. In effect, many women’s payments to Social Security don’t generate higher benefits for them, which makes these payments serve more as a tax than as a contribution. My project analyzes how big these incentive effects might be and what, if anything, policymakers might do about them.
*Social Security Literacy and Retirement Well-Being; Hugo Benítez-Silva, Berna Demiralp, Zhen Liu; Michigan Retirement Research Center; 2009. http://www.mrrc.isr.umich.edu/publications/papers/pdf/wp210.pdf
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