Association for Public Policy Analysis & Management

Increasing budget deficits and declining retirement savings present policy makers with difficult choices. Reducing the deficit by increasing taxes worsens American workers’ retirement security by making it more difficult to save for retirement. Reducing entitlements worsens workers’ retirement security because most Americans rely heavily on Social Security for their retirement income. What if there were a policy tool that could both reduce the deficit and increase the retirement security of workers? We argue that there is such a policy tool—an informational intervention known as the Social Security Statement (Statement).

The Social Security Administration (SSA) began mailing earnings and estimated-benefit statements to workers in 1995. One of the primary purposes of these statements was to provide workers with information on their Social Security benefits and to help them plan their financial futures. The Statement, the largest customized mailing ever undertaken by a federal agency, is widely acknowledged as one of the most important of federal government communications with the public.

Other researchers find that Statement receipt increases the public’s knowledge of Social Security programs and benefits but has no effect on when individuals claim benefits. Our research is the first to find an effect of the Statement on behavior. We use administrative data from the Social Security Administration to estimate linear probability models for cohorts of individuals who turn age 62 in calendar years 1975 through 2007. Our model contrasts the behavior of individuals who received a Statement with those who did not to estimate the impact of Statement receipt on the age at which benefits are claimed.

We find that receipt of the Statement resulted in a significant decline in the likelihood of benefit claiming at earlier ages, such as 62 or 63, and a significant increase in the likelihood of claiming at later ages such as 65. This effect of Statement receipt on benefit claiming tended to be greater for men and for whites and also varied by earnings level. Delaying claiming results in higher monthly benefits for the rest of the claimant’s life. Statistics from SSA show that Social Security benefits represent a significant proportion of retirement income for most workers. For example, Social Security benefits represent more than 80 percent of retirement income for low-income seniors and 66 percent of retirement income for middle-income seniors. Thus, such an informational intervention has the potential to increase retirement security for a large number of Americans.

We also find that Statement receipt increased the likelihood of greater labor force attachment at ages 62 through 70. This effect of Statement receipt was similar across gender and race. More time spent in the labor force results in more years of earnings and, consequently, increased tax revenue from both income and payroll taxes. All other things equal, this increase in tax revenue would reduce the deficit. An implication of our findings is that low-cost informational interventions, in addition to direct policy levers, might be an effective policy tool to both increase the retirement security of older Americans and to reduce the deficit.