Probabilistic Deduction and Early Standardized savings Guaranteeing

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Months since 62nd birthday. Late Retiree Sample: Claiming by those not ... Months since 62nd birthday. N=1801. Age 65 spike. Revising for Measurement Errors ...

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´╗┐Probabilistic Thinking and Early Social Security Claiming eighth Annual Joint Conference of the Retirement Research Consortium "Pathways to a Secure Retirement" August 10-11, 2006 Washington, D.C.

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Motivation Do individuals assert SS in view of their survival desires? Hurd, Smith and Zissimopoulos - HSZ (2004) Use coordinate measures of survival desires Findings: subjective survival of 0 connected with early guaranteeing; generally, no impact Is the impact found by HSZ too little? Study measures of survival desires catch much individual heterogeneity in hazard But likewise have a considerable measure of estimation mistake

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This Paper We reconsider whether individuals guarantee SS in light of their survival desires Correct estimation blunder in inspired subjective survival probabilities utilizing rich arrangement of hazard variables as instruments Findings: People follow up on their subjective survival convictions Statistically and financially critical impact of subjective survival on SS asserting for individuals working at 62 - flexibility of guaranteeing likelihood as for survival likelihood = - 1.24

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This Paper (cont.) Compare with forecasts of target survival likelihood in view of same hazard components Similar impact on SS asserting Do not contain more data than subjective survival to clarify SS guaranteeing Our discoveries recommend that individuals have exceptionally hetereogenous mortality desires their desires are generally objective they follow up on these convictions in choosing when to claim Social Security benefits

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The Analytical Samples Use information from the Health and Retirement Study (HRS) Follow HSZ and examine 2 bunches 1. Individuals who are resigned by age 62 Analyze SS asserting by age 64 2. Individuals who are NOT resigned by age 62 Analyze joint choice to resign and guarantee by age 64

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79.2% claim in first year of qualification 89.6% claim by third year No impact of survival desires (all particulars) Early Retiree Sample: Claiming by those resigned by age 62 Months since 62 nd birthday

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21.2% claim in first year of qualification 62.2% claim by third year Significant impacts of survival desires when rectified for estimation mistake Late Retiree Sample: Claiming by those not resigned by age 62 Age 65 spike N=1801 Months since 62 nd birthday

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Correcting for Measurement Errors Probabilistic convictions about survival in HRS (On a scale from 0 to 100) What are the odds that you will live to be age at least 75? Estimation blunder: adjusting and loading at "50" and "100" Use Instrumental Variable techniques to redress for estimation mistake Four arrangements of instruments: Basic demographic attributes Health factors (self-reported wellbeing and conditions) Dummy factors on parental mortality (possess and mate) Optimism record

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Survey measure of survival convictions are entirely uproarious numerous central answers at "0", "50" and "100" Heterogeneity of Survival Beliefs and Measurement Error Subjective Probability of Survival to Age 75

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But there is a considerable measure of individual fluctuation in subjective mortality chance in light of hazard elements (see Table 5) Heterogeneity of Survival Beliefs and Measurement Error (cont.) Predicted Subjective Survival Probability

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The impacts of subjective survival desires on guaranteeing conduct Bivariate probit show with demographics, wellbeing and riches factors Claim by 64 determination Effect of subjective survivals on asserting amendment for estimation blunder expands greatness of impact by eight-overlay instrumented coefficient is very noteworthy in view of boot-strapped standard blunders

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The impacts of subjective survival desires on asserting conduct Bivariate probit display with demographics, wellbeing and riches factors Claim by 64 particular Effect of subjective survival likelihood on guaranteeing

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The impacts of target survival desires on asserting conduct Use information on 8 to 12 years real mortality to evaluate and " objective " likelihood of survival to age 75 utilizing same factors concerning IV Bivariate probit demonstrate Claim by 64 Specification Similar impacts of subjective and target desires on SS guaranteeing Objective desires don't contain more data than subjective survivals to clarify SS guaranteeing

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Conclusion Measurement mistakes in subjective likelihood are critical Mortality desires have huge impact on SS guaranteeing People who hope to be enduring deferral guaranteeing and appreciate bigger advantages Positive impact for the prosperity of the elderly Higher cost for citizens Ambiguous welfare consequences for the entire populace

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