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Mismeasurement of pensions before and after retirement: the mystery of the disappearing pensions with implications for the importance of Social Security as a source of retirement support*

Published online by Cambridge University Press:  31 May 2013

ALAN L. GUSTMAN ,
THOMAS L. STEINMEIER  and
NAHID TABATABAI
ALAN L. GUSTMAN
Affiliation:
Department of Economics, Dartmouth College and NBER, Hanover, NH 03755-3514, USA (e-mail: [email protected])
THOMAS L. STEINMEIER
Affiliation:
Department of Economics, Texas Tech University, Lubbock, TX 79409, USA (e-mail: [email protected])
NAHID TABATABAI
Affiliation:
Department of Economics, Dartmouth College, Hanover, NH 03755-3514, USA (e-mail: [email protected])
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Abstract

A review of the literature suggests that when pension values are measured by the wealth equivalent of promised defined benefit pension benefits and defined contribution balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study for respondents in their early fifties suggest that pension wealth is about 82% as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65–69, pension incomes are about 58% as valuable as incomes from Social Security. Our empirical analysis uses data from the HRS to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data. Key factors accounting for these differences include: a difference in methodology between surveys affecting what is included in pension income; some pension wealth ‘disappears’ at retirement because respondents change their pension into other forms that are not counted as pension income; and the form of annuitization may influence the measure of pension income. A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.

Keywords

Pensionsretirementwealthincomes of the elderlybenefits
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 13 , Issue 1 , January 2014 , pp. 1 - 26
Copyright
Copyright © Cambridge University Press 2013 

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Footnotes

*

This work was supported by a grant from the Social Security Administration through the Michigan Retirement Research Center (Grant # 3002043711UM12-10). The findings and conclusions expressed are solely those of the authors and do not represent the views of the Social Security Administration, any agency of the Federal government, the Michigan Retirement Research Center or the NBER.

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