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Cohort Changes in Social Security Benefits and Pension Wealth

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Abstract

We utilize three sets of data resources—the Health and Retirement Study (HRS), linked Social Security earnings records of the HRS respondents, and publicly available pension plan descriptions—to study pension wealth accumulations among the recent HRS cohorts. We document the trends in pension wealth over time and across cohorts during a period in which the economic consequences of the Great Recession were significant. However, given that pension wealth of many respondents were imputed in earlier waves due to the lack of information about pension plan provisions, there is the question of how much of the changes in pension wealth should be attributed to errors in imputation. The recently available pension plan descriptions from private employers’ Form 5500 filings and public employers’ websites, which improve the respondent-plan linkage over what was available in previous waves, allow us to examine this exact question. In particular, we show that the newly available sets of information not only reduce the need for imputation, but also enable us to identify the plans not reported by HRS respondents in the survey and the retirement wealth associated with these plans. Finally, we also test the validity of the earnings projection methods used to produce Social Security and pension wealth estimates in the HRS, and we end our report with a discussion over the pros and cons among the projection methods.

Key Findings

  • The near-elderly population in the most recent cohort is not as financially prepared for retirement as their peers in earlier cohorts. In relative terms, retirement wealth does not grow as fast as lifetime earnings; in absolute terms, retirement wealth declines among men and minorities since the turn of the century.
  • There has been a stable shift from defined benefit (DB) plans to nonannuitized retirement wealth such as defined contributions (DC) or individual retirement accounts (IRA). The increase in DC and IRA was not enough to make up the loss in DB, which was reflected in the decline in retirement wealth. As a result, the proportion of Social Security benefits in total retirement wealth was increasing, especially among minorities.
  • The HRS used different earnings projection methods to produce Social Security and pension wealth estimates. The earnings projection in Social Security wealth estimation requires administrative data linkage, but performs reasonably well for those who stay in the same job in 2010. The earnings projection in pension wealth does not require data linkage and is easier to implement, but pension wealth estimates in 2004 were affected by larger errors in earnings projection for the same group of respondents.

Citation

Fang, Chichun, Charles Brown, and David Weir. 2016. “Cohort Changes in Social Security Benefits and Pension Wealth.” Ann Arbor, MI. University of Michigan Retirement Research Center (MRRC) Working Paper, WP 2016-350. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp350.pdf

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Project

Paper ID

WP 2016-350

Publication Type

Working Paper

Publication Year

2016