Retirement Economics and Aging_savings by liuqingyan

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									Retirement Economics
      and Aging
           Robert J. Willis
        University of Michigan

  Conference on Neuroeconomics and Aging
       Stanford, March 31-April 1, 2006
          Outline (30 minute talk)
• HRS Project briefly described
   – Basic design and goal
   – New content on biomarkers, performance measures, cognition
   – International pandemic
• New Directions: Cognition and Biomarkers
   – ADAMS project and cognitive aging
   – Potential for linkage with imaging studies
• P01 Project—linking survey methods, psychology, economics
• Role of cognition/emotion in complex decisionmaking
   –   Pensions/Savings
   –   Portfolio Choice
   –   Survival Expectations
   –   Poverty Issues
• Application to Medicare Prescription Drug Program
The Health and Retirement
         Study




  http://www.umich.edu/~hrswww
             Origins of the HRS

• 1985-90:
  – National Institute on Aging determined there was
    lack of data to study policy or scientific issues
    relevant to aging society.
• 1990:
  – NIA decided to invest in new longitudinal study of
    retirement
• 1990-92
  – Institute for Social Research at UM won
    competition for HRS
  – Interdisciplinary research team from entire U.S.
    designed HRS, launched in 1992
              Evolution of HRS

• 1992: Original HRS cohort
  –   Persons age 51-61 in 1992 (born 1931-41)
  –   Plus spouses of age eligible persons
  –   N=12,654 at baseline
  –   Longitudinal follow-up every two years
• 1993: Original AHEAD cohort
  –   Persons age 70+ in 1993 (born 1890-1923)
  –   Plus spouses of age eligible persons
  –   N=8223 at baseline
  –   Longitudinal follow-up every two years
   HRS Steady State Design:
    1998-2010 and Beyond
• 1998 Re-design
  – Merged HRS/AHEAD into single study
  – Add New Cohorts
    • Children of Depression entering their 70’s (b.
      1924-30)
    • War Babies entering 50’s (born 1942-47)
  – Add New 6 Year Cohort Each 6 years
    • 2004: Add Early Boomers (born 1948-53)
    • 2010: Add Mid-Boomers (born 1954-59)
 The HRS is a multidisciplinary effort
 that began with initial design in 1990

A large and diverse community of researchers actively
participated in the study design and implementation

• Economics                 • Medicine
• Sociology                 • Public Health
• Demography                • Psychology
   HRS Designed to Understand Decisions,
Choices, and Behaviors in Response to Policies


 • Study families rather than individuals
 • Gather integrated multidisciplinary information about
   all aspects of life
 • Follow people over time as events happen and their
   choices get made
 • Make the data available to researchers and policy-
   makers as quickly as possible
 • Let the full power and creativity of America’s scientific
   community address the challenges of an aging
   population
HRS Studies All Cohorts Born between
           1900 and 1953
                  Figure 3. Size of Birth Cohorts Represented in HRS
                              Total Number of Births in U.S. in Year
4000
2000

       0




           1910       1923 1931    194219481954 1961               1980             2000
                                            year

                        1890-1923 AHEAD                      1924-1930 CODA
                        1931-1941 HRS                        1942-1947 War Baby
                        1948-1953 Early Boomer               1954-1960 Mid Boomer
                        1960-2000 Post Boomer
   The HRS Data System: Scale of
    Measurement during 2000-05
• 59,718 interviews
• 20,129 in HRS-2004 Core
• 4,222 interviews with next of kin of respondents
  who died
• 32,138 mail surveys
• 21,228 Social Security linkages
• 18,688 Medicare linkages
• 1,430 in-home neuropsychological assessments
  on 850 ADAMS respondents
 HRS Longitudinal Sample Design
AGE
90
                                                                 AHEAD

85
                                                                  CODA

80

75                                                                HRS

70
                                                                  War
65                                                               Babies
                                                                  Early
60
                                                                 Boomers

55                                                                 Mid
                                                                 Boomers
50
      92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
                             YEAR
                        Scientific Productivity of HRS
                                       HRS Publications, 1993-2005:
                                        Cumulative Count by Type
                 1000
                                                                                                                                                  24
                         Cumulative Count: June 15, 2005
                 900
                           Journal Publications     510
                 800       Books and Book Chapters 83                                                                                             326
                                                                                                                                           318
                           Dissertations              59
                 700
                           Working Papers            326                                                                         281
                                                                                                                                                  59
                                  Total             978
Citation Count




                 600
                                                                                                                                           59
                                                                                                                      228
                 500     On average, one new journal article                                                                               86
                                                                                                                                                  93
                                                                                                                                  54
                         using HRS is published every 5                                                   185
                 400                                                                                                  44          81
                         days                                                                  129                    72
                                                                                                           37
                 300                                                                                       66
                                                                                  101          27
                                                                                                                                                  485
                                                                                               53                                          449
                 200                                                                                                             373
                                                                          83       37                                 310
                                                                 54       23                              255
                 100                                             12                            199
                                                      37                          152
                                                       8         77       102
                                           23
                                            0         41
                   0     10
                          1
                          0    14
                                0
                                3
                                2          17
                        1993   1994       1995        1996      1997     1998     1999         2000       2001        2002       2003      2004   2005

                                                                                 Year

                                    Journal Article        Book/Book Chapter    Dissertation          Working Paper          Forthcoming
     Comparable International
     Surveys in 17 Countries
• ELSA (English Longitudinal Study of Ageing)
  – Two waves completed (2002, 2004)
• SHARE (Survey of Health, Ageing and
  Retirement in Europe) supported by EU
  – 11 Countries Completed first wave in 2004
     • Belgium, Denmark, France, Germany, Greece, Italy,
       Netherlands, Spain, Sweden, Switzerland
  – 4 Countries will begin in 2006
     • Czech Republic, Israel, Ireland, Poland
• MHAS (Mexican Health and Aging Study)
  – Two waves completed (2001, 2003)
• KLoSA (Korean Longitudinal Study of Aging)
• Japan and China may be next
        New Directions for HRS:
1. Biomarkers and Physical Performance
• New measures
  – Biomarkers
     • Dried blood spots
     • Collect and store genetic material
  – Physical Performance Measures
     • Measure grip strength, timed walk, lung capacity
     • Measure blood pressure
• Collected in ―Enhanced Face-to-Face
  Interviews for half of sample each wave
  – Each person measured once every 4 years
  Selecting Biomarkers for HRS:

• Multi-dimensional predictors of disease and
  dysfunction:
  – Genes; C-reactive protein
• Major predictors of disease and death among
  elders:
  – Blood pressure; cholesterol, HbA1c
• Candidates for assessing stress, and reflecting
  mental illness and some behaviors
  – genes
     New Directions for HRS:
2. Measurement of Cognition and
     Psychosocial Variables
Growing Complexity of Decisions Facing
          Older Americans
• Examples
  – Shift from defined benefit to defined
    contribution pension plans
     • Contribution rates: how much to save
     • Portfolio choice: how much risk to take
     • Post-retirement Income: Annuitize or not?
  – Introduction of Medicare Prescription Drug
    Plan
     • Choose among 40 or so alternative plans: which is
       best?
      ADAMS Study of Dementia
• ADAMS has established baseline measures of
  dementia and CIND (cognitive impairment, not
  demented) in substratified subsample of 850
  HRS respondents
  – In-home clinical assessment
  – Plan to use longitudinal data to measure transitions
    into dementia and CIND
• Longitudinal data in HRS will allow
  measurement of costs and burdens of disease to
  individual, family and society

Langa,K, et. al., ―The Aging, Demographics and Memory Study: Study Design
and Methods‖ Neuroepidemiology, vol. 25, pp. 181-191, 2005
      “Assessing and Improving Cognitive
          Measurements in the HRS”
               (AG-07407-14) John J. McArdle, USC

• Experimental measures in HRS
   – Adaptive number series test in 2004 (Woodcock-Johnson)
   – repeat number series, add vocabulary, prospective memory
• How Do HRS Cognitive Measures Relate to Woodcock-
  Johnsnon?
   – Use independent sample of 1000 people age 57+ from HRS
     screening survey in two wave longitudinal survey
   – Administer HRS cognitive items, full Woodcock-Johnson (3hrs)
• Use results to ―re-engineer‖ HRS cognitive measures,
  beginning in 2008
  ―Behavior on Surveys and in the Economy
                Using HRS‖
                (P01 AG02657) R. Willis, PI
  – Goal to link psychology, survey methods,
    econometrics and economic theory
• Three Projects
  – ―Probabilistic Thinking and Economic Behavior‖ Willis,
    PI, Hurd, Manski
  – ―Well Being and Utility in Psychology and Economics‖
    Kimball, PI; Schwarz, Willis
  – Explaining Household Portfolio Choice in Saving for
    Retirement (T. Shumay, PI; Miles Kimball, Matthew
    Shapiro
• Data Innovation Core
• Networking Core
  Psychosocial “Leave Behind”
• Psychosocial
  – ELSA measures administered in HRS-2004
    as ―leave-behind‖ self-administered
    questionnaire
  – Design new leave-behind SAQ based on
    advice from planned conference
• Vignettes
  – Work-relate vignettes in 2004
  – Health vignettes similar to SHARE
  Retirement Behavior In
International Perspective?
      Retirement Patterns of the Men in the
        Original HRS Cohort: 1992-2002

By age 70 just under 80 percent                    Retirement of Original HRS Cohort
                                                  Married Men Born 1931-41, Age 51-61 in 1992
were fully retired and another




                                                                                                               40
                                        80
6-7 percent were partly retired




                                                                                                               30
                                        60




                                                                                            Hazard Rate
The process of retirement begins
                              Percent




                                                                                                               20
in the early 50’s, accelerates

                                        40
about 60, reaches a sharp




                                                                                                               10
                                        20
spike at age 62 and another
sub-spike at age 65




                                                                                                               0
                                         0

                                             50        55               60          65                    70
                                                                       Age

                                                  Retired from Full Time Work       Retirement Hazard
                                                  Completely Retired




                                             Source: Gustman and Steinmeier (2004)
  What Will Happen to Retirement for the Early
                  Boomers?

• Long term trend in
  U.S. from 1850 to
  1990 has been
  toward earlier
  retirement.
International Trends Toward Earlier Retirement

• Trend toward lower
  labor force
  participation at
  older ages is much
  sharper in a
  number of
  European countries
  than in US




  Source: J. Gruber and D. Wise, Social Security Programs and Retirement Around the World,
  U. Chicago Press, 1999.
Retirement Policy Shapes Retirement Behavior
                                70
                                                                             Belgium
     Percent Early Retirement



                                60                                      France Italy
                                                                           Holland
                                                           UK


                                50                       Germany
                                                 Spain
                                             Canada

                                40
                                     US
                                            Sweden

                                30
                                           20               40     60       80 100
                                          Percent Penalty for Continued Work
Source: J. Gruber and D. Wise, Social Security and Retirement Around the World (NBER, 2000)
Downward Trend in Labor Force Participation
 in U.S. Began to Reverse Itself around 1985.
          Is the Reversal Permanent?
                 Males                                              Females




Source: Technical Panel for the Social Security Administration, 2003, based on research by
Joseph Quinn, Boston College.
  What Do the Early Boomers Expect?
• HRS has pioneered asking questions about expectations
  on a wide variety of topics including survival to a given
  age, bequests, stock market returns and work and
  retirement expectations
• Researchers have used the work expectation questions
  in earlier waves and have found them to be useful
  predictors of actual work and retirement in later waves
• We can now obtain a look at what the Early Boomers,
  aged 51-56 in 2004 say they will be doing at age 62, 65
  and their age at retirement as compared to earlier
  cohorts at the same age.
• Note that these questions offer a window into the future
  about ten years hence!
      Signs of Reversal of Long Term Trend
            toward Early Retirement

                                                                    •Historical trend toward earlier
                Expectations of Working After Age 65
                      Males and Females Age 51-56                   Retirement from 1850’s
                         42.4
                                                                    through mid-1980’s
 40




                                                             36.4

               33.0

        29.5                                                        •Labor force participation
 30




                                                     24.5           at older ages flat since then
                                          22.7
 20




                                                                    •Possible reversal:
                                                                    Early boomer cohort in HRS
 10




                                                                    (born 1948-53) expects to
                                                                    work more than earlier
  0




       1992    1998     2004             1992        1998    2004   Cohorts
               Male                                 Female




Source: Health and Retirement Study
Are Retirement Savings
      Adequate?
      Distribution of Wealth: HRS1992




Source: Scholz, Seshadri and Khitatrakun “Are Americans Saving `Optimally’” JPE (forthcoming)
Predicted Wealth Based on Dynamic
Optimization Model vs. Actual Wealth
Optimal
Net Worth
                                                                       Most people
                                                                       have more
                                                                       net worth
                                                                       than ―optimal‖!




                                                           Observed
                                                           Net Worth




       Source:Scholz, Seshadri and Khitatrakun (forthcoming)
Inequality in Health, Wealth and
            Cognition
          Strong Correlation Between Health
                     and Wealth
           Mean Net Worth by Health of Husband and Wife

Understanding this
correlation requires                                   500
longitudinal data from
                                      (in Thousands)


                                                       400
                          Net Worth




•Economics
                                                       300
•Health
                                                       200                                                  Excellent
•Sociology/Demography                                                                                    V Good
                                                       100                                            Good
•Psychology
                                                             0                                 Fair   Husband's
                                                                                        Poor            Health
                                                                n        t
                                                                       d
                                                            lle

                                                                    oo


                                                                     d
                                                        ce




                                                                  oo


                                                                              ir
                                                                   G




                                                                             Fa
                                                       Ex




                                                                                   or
                                                                 G
                                                                 V




                                                                                  Po




                                                        Wife's Health
     Source: Robert J. Willis, “Theory confronts data: how the HRS is shaped by the economics of aging and how the
     economics of aging will be shaped by the HRS,” Labour Economics, Volume 6, No. 2, page 119, June, 1999.
               “Economic Consequences
                 of a Husband’s Death”




Source: P. Sevak, D. Weir and R. Willis, ―The Economic Consequences of a Husband’s Death:
Evidence from the HRS and AHEAD.‖ Social Security Bulletin (2003/2004).
Probability of Poverty Highest
for those who are widowed
earliest

Poverty probability increases
with age/duration of widowhood

Underlying causation could be
from various sources; e.g.,
• poor selected into widowhood
• early death of husband is
   negative shock to income,
   saving




        Source: P. Sevak, D. Weir and R. Willis, ―The Economic Consequences of a Husband’s Death:
        Evidence from the HRS and AHEAD.‖ Social Security Bulletin (2003/2004).
 Monitoring a Social Experiment:
 The Medicare Prescription Drug
         Program, Part D
CMS (Center for Medicare and Medicare Administration) began
publicizing new program in Fall 2005.

Enrollment began Jan. 15, 2006, ends May 15, 2006. Substantial
lifetime penalty if plan not chosen before May 15

Potentially Highly Complex Choices
    • Each enrollee has choice of about 40 different plan providers from
    own state, each with three tiers of coverage and level of premium.

    • Coverage has ―doughnut hole‖ $2250 and $3600 of out-of-pocket cost
    in which there is no coverage.

    • Formulary of plan may not match person’s needs
 HRS Prescription Drug Survey
1. Mail Survey, mid-October to mid-December
   2005
  –   Collect detailed med data, prior to implementation of
      Part D
  –   Link meds to external databases to get prices
  –   Assess state of knowledge, attitudes, and intentions
      about Part D
2. Core Survey for HRS-2006
  –   Determine enrollment, premiums
  –   Name of plan, information used in choosing
  –   Confidence about making right decision
      HRS Prescription Drug Survey
                 (cont.)
3. HRS/RAND Internet Survey, Phase 2
  •    Design meeting 3/20/06 sponsored by Willis P01
       and HRS/RAND Internet project to design
       questionnaire module
  •    Will go in field following core interview around
       November, 2006
      •   Can look choices during new enrollment period
      •   Can study help given by R’s <65 to their parents
      •   Could do experiments
4. HRS Mail Survey, 2007
  •    New Roster of Prescription Drugs to detect changes
Early Results from PDS-2005 Mail Survey



 Based on David Weir, ―The Unbalanced Distribution of
 Cognitive Demands and Cognitive Resources for Part D
 Decision-Making,‖ (in progress)
                           PDS 2005 Response Rates
                      by Race/Ethnicity, and by Type of Contact
                     100

                     90

                     80

                     70
Percent Responding




                     60
                                                                  Phone
                     50
                                                                  Mail
                     40

                     30

                     20

                     10

                      0
                             White      AfrAm        Hisp



 Source: D. Weir, ―The Unbalanced Distribution of Cognitive Demands and
            Cognitive Resources for Part D Decision-Making.‖
              People Love Their Meds:

    4600 respondents listed 15,000+ drugs
          For each drug, we asked:

• Is this medication very important for your health?
   – 91% Agree
   – 1% Disagree
   – 8% Don’t Know




   Source: D. Weir, ―The Unbalanced Distribution of Cognitive Demands and
              Cognitive Resources for Part D Decision-Making.‖
To understand who needs to do what, you need
to separate out five main categories of people.

           CMS Outreach: Five Target Groups
1. Retiree Rx coverage
   •   Short term, stay put
2. Medicaid
   •   Short term, automatic enroll, maybe wrong meds
3. Medicare Advantage (HMO)
   •   Short term, don’t need to do anything
4. Other Low-income
   •   Have to apply for “extra help,” choose plan
5. Other
   •   Need to decide whether to enroll, choose plan
  Source: D. Weir, ―The Unbalanced Distribution of Cognitive Demands and
             Cognitive Resources for Part D Decision-Making.‖
Groups Differ Widely by Economic Resources

                (Median values, HRS2004)
                                Income   Wealth
 Retiree                       $39,512 $274,200
 Other                          34,592 315,800
 HMO                            27,754 185,000
 Low Inc                        12,288   21,500
 Medicaid                         9,888   3,005

 All                           $29,804 $200,000
 Source: D. Weir, ―The Unbalanced Distribution of Cognitive Demands and
            Cognitive Resources for Part D Decision-Making.‖
         Groups Differ Widely in Cognitive
                    Resources

                  Education Numeracy Memory Internet
Retiree                  13.0    1.8     9.7    32%
Other                    12.5    1.6     9.5    26%
HMO                      11.9    1.6     9.1    25%
Low Inc                  10.3    0.9     7.7     7%
Medicaid                  8.7    0.7     7.1     5%

All                          12.0             1.5          9.2        25%

      Source: D. Weir, ―The Unbalanced Distribution of Cognitive Demands and
                 Cognitive Resources for Part D Decision-Making.‖
Groups Differ Widely in Health Status
                      Any       Fair or
                      ADL/IADL poor
Retiree                   20.7%    24.6%
Other                     23.0%    21.8%
HMO                       27.5%    30.0%
Low Inc                   41.4%    44.9%
Medicaid                  57.4%    57.1%

All                            28.0%               29.9%
Source: D. Weir, ―The Unbalanced Distribution of Cognitive Demands and
           Cognitive Resources for Part D Decision-Making.‖
 Stress Associated with High Demands,
  Low Resources for Decision-Making
                 Know little          Favorable
                 about it    Stressed to Part D
Retiree             49.8%       38.0%     13.7%
Other               54.0%       43.1%     16.5%
HMO                 60.6%       41.4%     17.7%
Low Inc             69.0%       50.2%     21.8%
Medicaid            72.2%       35.7%     21.7%

All                    56.5%            40.6%              16.6%
  Source: D. Weir, ―The Unbalanced Distribution of Cognitive Demands and
             Cognitive Resources for Part D Decision-Making.‖

								
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