Research on Pensions and Social Security

By Gustman, Alan L.; Steinmeier, Thomas L. | NBER Reporter, Summer 2000 | Go to article overview
Save to active project

Research on Pensions and Social Security


Gustman, Alan L., Steinmeier, Thomas L., NBER Reporter


Thomas L. Steinmeier [*]

Pensions and Social Security are fundamental parts of saving. They each account for about a quarter of the $500,000 in total wealth held on average by families approaching retirement age. [1] Pensions have a large effect on retirement incentives as well. A man with a defined benefit (DB) pension plan who works in the year before qualifying for early retirement on average will find his benefits increased by about 60 percent of one year's pay. For a woman, the increase amounts to about one-third of a year's pay. [2] Accordingly, it is necessary to have accurate measures of pensions and Social Security in order to measure the wealth of those entering retirement, to understand saving and retirement behavior, and to determine the true impact of policies meant to influence saving and retirement.

The Health and Retirement Study

To further our understanding of pensions, Social Security, and their effects, we recently helped to develop and analyze data from the Health and Retirement Study (HRS). [3] The HRS, originally fielded in 1992 as a panel survey of 12,652 individuals from households with at least one member born in 1931-41, now has added additional cohorts (age groups) so that it is representative of the U.S. population over the age of 50. Crucial to our work, the HRS has collected pension Summary Plan Descriptions (SPDs) from the employers of two-thirds of those in the original survey who were covered by a pension in 1992. The HRS also collected detailed descriptions of pensions from this group's employers on previous jobs. Also central to our work, 80 percent of the survey respondents granted permission to the HRS to obtain their earnings histories from the Social Security Administration. Social Security records were linked successfully for 95 percent of those granting permission, or 75 percent of the HRS sample.

The HRS cohort is an interesting group to study: they are the group closest to retirement age and the first covered by Social Security to learn that the present value of their benefits will fall below the present value of their taxes paid. [4] Thus, the HRS data can teach us a great deal about: retirement incentives; the relationship of pensions and Social Security to total saving and retirement outcomes; complexities in behavior beyond those incorporated in the simple lifecycle model; and the relationship between pension and Social Security policies and the distribution of benefits plus behavioral outcomes.

Distributions of Pensions, Social Security, Wealth, and Lifetime Earnings

From the HRS data, we have learned a great deal about the distribution of total wealth and its components -- including pensions and Social Security -- and about how they vary with lifetime earnings, for households and for individuals. Contrary to the general impression, pensions are distributed widely among households. Although only half of the employed individuals in the HRS have a pension, three-fourths of HRS households were covered by a pension at one time, and two-thirds of HRS households own the rights to a pension or pension income. In 1992, pension wealth was worth $191,000 per HRS household with a claim on a pension. Moreover, less than 10 percent of pension wealth has been lost because covered respondents have cashed out their benefits after leaving a pension covered job.

The share of family wealth held as pensions increases with family lifetime earnings, rising from less than 5 percent of total wealth for those in the bottom 10 percent of lifetime earners, to 30 percent of total wealth for those in the 75th to 95th percentiles of lifetime earners. [5] Although men hold pensions that are much more valuable than the pensions held by women -- for example, at age 55, men hold DB pensions worth $200,000, while women's holdings are $108,000 -- the differences are explained largely by differences in earnings. Benefit-earnings ratios are actually higher for women with DB plans than men: for example, at age 60, benefit-earnings ratios are 20 percent for women and 16 percent for men.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Research on Pensions and Social Security
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?