The Level and Risk of Out-of-Pocket Health Care Spending

The Health and Retirement Study (HRS) is a long-running panel survey with good measures of economic status, so it is the pre-eminent data set for studies about the economic status of the older population and economic preparation for retirement. However, the HRS expends considerably fewer resources on the measurement of out-of-pocket spending than other surveys such as the Medical Expenditure Panel Survey (MEPS) and the Medicare Current Beneficiary Survey (MCBS), which may result in its having relatively less accurate measurement of such spending. We compare the level and distribution of out-of-pocket spending in the HRS with similar measures in MEPS and MCBS in the population aged 65 or older. We find that the measures of out-of-pocket spending in the HRS are about 50% greater than those in MEPS at the mean, and very much greater at the upper points of the distribution. HRS and MCBS are in better agreement, although the HRS is higher at the mean and at the top of the distribution. The implication is that the level and risk of out-of-pocket spending on health care are exaggerated in HRS. Observation error in the HRS measurement relative to MEPS and MCBS is to be expected, but this does not explain the apparent bias. We conclude that researchers who use HRS 2004 or earlier should examine health care spending carefully, even on a case-by-case basis.

The Effects of the Economic Crisis on the Older Population

We study the effects of the 2007-2009 recession on the population age 55 and older. Households in and near retirement have suffered sizeable losses in assets as a result of the economic crisis. There are a number of ways in which households might respond: reduce spending and with that increase saving, work longer, and/or bequeath less. Using longitudinal data from the Health and Retirement Study and its supplemental surveys, we find that all of these adjustments have been important.

The Effect of the Risk of Out-of-Pocket Spending for Health Care on Economic Preparation for Retirement

After retirement, the primary sources of uncertainty with respect to an individual’s economic status are longevity, investment outcomes and out-of-pocket spending on health care. In previous work, we estimated economic preparation for retirement, taking into account the risk of living to an advanced old age and the concomitant risk of running out of resources. But while we accounted for the average level out-of-pocket spending for health care, we did not account for the risk of out-of-pocket spending. In this paper we augment our model for this omission. We find that the risk of out-of-pocket health care spending reduces economic preparation for retirement from about 72% of persons in the age range 65-69 to about 63%. However, this relatively modest reduction is quite unequally distributed: about 57% of single persons are adequately prepared when health care spending is not stochastic, but just 44% when it is. Among single women who are not high school graduates the percentage adequately prepared declines from 33% to 15%.

Adequacy of Economic Resources in Retirement and Returns-toscale in Consumption

Most assessments of the adequacy of retirement resources are expressed as a comparison of preretirement income to immediate post-retirement income. Yet, among couples a substantial fraction of retirement years is eventually spent by the surviving spouse living alone. To the extent that singles need less than couples to maintain the same standard of living, assessments of the adequacy of economic resources that make no adjustment for widowing will ystematically misstate economic preparation. We estimate returns-to-scale parameters in spending by older households, using data from the Consumption and Activities Mail Survey and apply these to assessments of adequacy of retirement resources.

Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS

According to economic theory, well-being or utility depends on consumption. However, at the household level, total consumption is rarely measured because its collection requires a great deal of survey time. As a result income has been widely used to assess economic well-being and poverty rates. Yet, because households can use wealth to consume more than income, an income-based measure of well-being could yield misleading results for many households, especially at older ages. We use data from the Health and Retirement Study to find income-based poverty rates which we compare with poverty rates as measured in the Current Population Survey. We use HRS consumption data to calculate a consumption-based poverty rate and study the relationship between income-based and consumption-based poverty measures. We find that the poverty rate based on consumption is lower than the income-based poverty rate. Particularly noteworthy is the much lower rate among the oldest single persons such as widows. The explanation for the difference is the ability to consume out of wealth.

Changes in Consumption and Activities in Retirement

The simple one-good model of life-cycle consumption requires “consumption smoothing.” According to previous results based on partial spending and on synthetic panels, British and U.S. households apparently reduce consumption at retirement. The reduction cannot be explained by the simple one-good life-cycle model, so it has been referred to as the retirement-consumption puzzle. An interpretation is that at retirement individuals discover they have fewer economic resources than they had anticipated prior to retirement, and as a consequence reduce consumption. This interpretation challenges the life-cycle model where consumers are assumed to be forward looking. Using panel data on anticipated consumption changes at retirement and on recollected consumption changes following retirement, we find that the median recollected change in spending at retirement is zero and that the recollections are broadly consistent with anticipations. Based on a measure of total spending in true panel we find that the actual mean and median changes are slightly positive. Therefore, we find no retirement-consumption puzzle.

Pension Reform in Mexico: The Evolution of Pension Fund Management Fees and their Effect on Pension Balances

In 1997 Mexico introduced Personal Retirement Accounts (PRAs) which, after a transition phase, will completely replace the pay-as-you-go (PAYG) system. We give a detailed overview of the relevant institutional framework, the market of PRA providers and how it has evolved since the 1997 reform. We use administrative data obtained from CONSAR, the regulatory agency of the PRA system to assess how pension fund management fees affect pension accumulations. We find that fees can drain up to a quarter of individuals’ pension savings.

WP 2018-387

Irregular withdrawals from IRAs and DC pensions are not included in standard measures of household income in the CPS or Health and Retirement Study. Yet, among retirees such withdrawals can supplement regular retirement income to finance consumption. It has been difficult to assess their importance, because of lack of informative survey data. In 2012 the HRS restructured the way it collects information about pensions, improving the measurement of irregular withdrawals from pension accounts. We analyzed HRS 2014 data and found that irregular withdrawals from pensions and IRAs totaled $2,049 for singles and$6,663 for couples averaged over everyone age 55 and older. These irregular withdrawals amount to about 5 percent of income for singles and 10 percent of income for married households. Irregular withdrawals are highest among those in the highest wealth quartile and those in the highest education group, reflecting the higher prevalence of pensions in high-paying jobs that are predominantly held by those with high education. Because of the greater frequency of IRA and pension withdrawals towards high SES individuals, accounting for them has little impact on estimates of the poverty rate.Social Security Administration, award RRC08098401-10, R-UM18-Q4https://deepblue.lib.umich.edu/bitstream/2027.42/147412/1/wp387.pdfDescription of wp387.pdf : Working pape

Trends in Pension Values Around Retirement

Prior studies have had difficulty assessing the value of expected pension resources, partly because many workers cannot recollect and report their pension entitlements, and partly because dual-earner couples may be individually, and sometimes jointly, entitled to claims on company pensions. This chapter develops and applies a new way to value pension wealth, so as to determine the importance of pension benefits in retiree wellbeing. We estimate the value of pensions for workers on the threshold of retirement in 1992, 1998, and 2004, drawing on Health and Retirement Study data. Results indicate a drop in the number of workers with defined benefit plans near retirement, though their average pension values rose. Turning to defined contribution plans, coverage and the average real value of the pensions rose, producing an overall increase in average pension wealth over the period examined. There is no support for the view that pensions are becoming less important for near-retirees, on average