Dynamics of Individual Information about Social Security

Susann Rohwedder, RAND
Kristin J. Kleinjans, RAND

Several studies have raised concern about an apparent widespread lack of knowledge about pensions and Social Security, even among people close to retirement. These findings largely rely on cross-sectional analyses, and therefore are likely to overstate the negative consequences of lack of knowledge: they only allow limited inference on whether lack of knowledge is a permanent state or whether knowledge improves over time as an individual approaches retirement. It is of great importance to understand how big a problem lack of knowledge in this area really is to assess to what extent it is responsible for people making sub-optimal choices and suffer bad outcomes in retirement. Understanding these patterns is also essential to find whether additional financial education could avert such bad outcomes. This paper adopts a dynamic approach and studies the evolution of individuals' expectations about their Social Security and pension benefits and subsequent receipt observed in the HRS.