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A ~ ~ - ~ ~ ~
51~7 ~llEl~S Ion
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D~t~, Re~e~r~,
Const~cc F. Ciao and Edc A. Ha~shok, Motors
Paw on Rch~cmcut Income ~odchng
Com~Ucc on N~ona1 St~isUcs
Com~s~on on Bcb~vior~ and Social Scicncos ad Dacron
Neons Rcsc~cb CouncH
NATIONAL ACADEMY PRESS
Washington, D.~. 1997
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NATIONAL ACADEMY PRESS · 2101 Constitution Avenue, NW · Washington, DC 20418
NOTICE: The project that is the subject of this report was approved by the Governing Board of the
National Research Council, whose members are drawn from the councils of the National Academy of
Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the
committee responsible for the report were chosen for their special competencies and with regard for
appropriate balance.
This report has been reviewed by a group other than the authors according to procedures
approved by a Report Review Committee consisting of members of the National Academy of Sci-
ences, the National Academy of Engineering, and the Institute of Medicine.
The project that is the subject of this report is supported by funds from the Pension and Welfare
Benefits Administration of the U.S. Department of Labor, the National Institute on Aging of the U.S.
Department of Health and Human Services, the Pension Benefit Guaranty Corporation, the Social
Security Administration, and TIAA-CREF.
Library of Congress Cataloging-in-Publication Data
Assessing policies for retirement income: needs for data, research,
and models / Constance F. Citro and Eric A. Hanushek, editors
Panel on Retirement Income Modeling, Committee on National
Statistics, Commission on Behavioral and Social Sciences and
Education, National Research Council.
p. cm.
Includes bibliographical references and index.
ISBN 0-309-05627-6
1. Retirementincome Forecasting Research United States.
2. Pensions Forecasting Research United States. 3. Social
security Forecasting Research United States. 4. Insurance,
Health Forecasting Research United States. I. Citro, Constance
F. (Constance Forbes), 1942- . II. Hanushek, Eric Alan, 1943- .
III. National Research Council (U.S.). Panel on Retirement Income
Modeling.
HD7125.A78 1997
331.25'2'072073 dc21
Additional copies of this book are available from
National Academy Press
2101 Constitution Avenue, NW
Box 285
Washington, DC 20055
Call 800-624-6242 or 202-334-3313 (in the Washington Metropolitan Area).
http://www.nap.edu
Copyright 1997 by the National Academy of Sciences. All rights reserved.
Printed in the United States of America
96-51696
CIP
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PANEL ON RETIREMENT INCOME MODELING
ERIC A. HANUSHEK (Chair), W. Allen Wallis Institute of Political
Economy, University of Rochester
HENRY J. AARON, The Brookings Institution, Washington, D.C.
ALAN J. AUERBACH, Department of Economics, University of California,
Berkeley
CHRISTOPHER BONE, Actuarial Sciences Associates, Somerset, New Jersey
PETER DIAMOND, Department of Economics, Massachusetts Institute of
Technology
MICHAEL HURD, Department of Economics, State University of New York,
Stony Brook
OLIVIA S. MITCHELL, Department of Insurance and Risk Management, The
Wharton School, University of Pennsylvania
SAMUEL H. PRESTON, Population Studies Center, University of
Pennsylvania
JOHN P. RUST, Department of Economics, Yale University
TIMOTHY M. SMEEDING, Center for Policy Research, Syracuse University
JAMES P. SMITH, The RAND Corporation, Santa Monica, California
CONSTANCE F. CITRO, Study Director
NANCY L. MARITATO, Research Associate
CANDICE S. EVANS, Project Assistant
. . .
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COMMITTEE ON NATIONAL STATISTICS
1995-1996
NORMAN M. BRADBURN (Chair), National Opinion Research Center,
University of Chicago
JOHN E. ROLPH (Vice Chair), Department of Information and Operations
Management, University of Southern California
JULIE DaVANZO, The RAND Corporation, Santa Monica, California
WILLIAM EDDY, Department of Statistics, Carnegie Mellon University
JOHN F. GEWEKE, Department of Economics, University of Minnesota
JOEL B. GREENHOUSE, Department of Statistics, Carnegie Mellon
University
ERIC A. HANUSHEK, W. Allen Wallis Institute of Political Economy,
University of Rochester
NICHOLAS JEWELL, School of Public Health, University of California,
Berkeley
CHARLES MANSKI, Department of Economics, University of Wisconsin,
Madison
WILLIAM NORDHAUS, Department of Economics, Yale University
JANET NORWOOD, The Urban Institute, Washington, D.C.
EDWARD B. PERRIN, Department of Health Services, University of
Washington
KEITH F. RUST, Westat, Inc., Rockville, Maryland
FRANCISCO J. SAMANIEGO, Division of Statistics, University of California,
Davis
MIRON L. STRAF, Director
MICHELE L. CONRAD, Division Administrator
v
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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distin-
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The National Research Council was organized by the National Academy of Sciences in 1916 to
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are chairman and interim vice chairman, respectively, of the National Research Council.
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Contents
ACKNOWLEDGMENTS
EXECUTIVE SUMMARY
INTRODUCTION
Retirement Income Security, 11
The Report, 14
X1
10
CONSIDERATIONS IN RETIREMENT INCOME PROJECTIONS 17
The Concern for Income Security, 17
Current Status, 17; Future Prospects, 19
Near-Term Policy Options, 25
Social Security, 26; Employer Pensions, 27; Other Personal
Savings and Wealth, 29; Health Care Needs and Costs, 30
Outcome Criteria, 31
Challenges to Projection Modeling, 34
Outcomes, 34; Program Interactions, 34; Heterogeneity, 35;
Time Horizon, 36; Knowledge About Behavior, 37;
Uncertainty, 38
. .
vat
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. . .
vial
3 KEY RESEARCH ISSUES
Employer Behavior, 42
Choices of Families and Individuals, 46
Savings and Consumption, 46; Labor and Leisure, 49
Demographic Variables, 52
Size and Composition of the Population, 52; Family History, 53;
Health Status, 55
Health Care Costs, 56
Conclusion, 57
4 DATA NEEDS
The Lesson from Health Care Reform, 62
Dimensions of Databases, 68
Panel Data on Individuals, 70
Features of Long-Term Panel Surveys, 72; Features of
Other Surveys, 89; Directions for the Future, 91;
Recommendations, 96
Data on Employers, 96
r.
Government Sources, 97; Private Sources, 103; Problems with
Employer Surveys, 107; Directions for the Future, 110;
Recommendations, 119
Expanded Use of Administrative Data, 120
Records on Individuals, 121; Records on Employers, 123;
Recommendations, 124
Data Validation, 124
Validation Methods, 125; Validation Needs, 129;
Recommendation, 131
5 DEVELOPMENT OF PROJECT MODELS
Current Models and Their Uses, 133
Types of Models, 133; Dimensions of Models, 135;
Assessment, 138
Looking to the Future, 140
Employer Models, 140; Recommendation, 142; Microsimulation
Models of Individuals and Families, 142; Recommendation, 153
Validation, 153
Validation Goals and Methods, 153; SSA Model
Validation, 156; Recommendation, 159
Near-Term Modeling Strategies, 159
The CBO Approach, 160; Improvements to Existing
Models, 162; Recommendations, 163
CONTENTS
39
61
132
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CONTENTS
6 FURTHERING COORDINATION FOR DATA COLLECTION,
RESEARCH, AND MODELING
Organizational Issues, 165
Coordination Mechanisms, 167
Data Collection, 167; Projection Modeling, 169;
Recommendation, 170
Involving the Private Sector and Academia, 170
Data Collection, 170; Projection Modeling, 171,
Recommendation, 172
APPENDICES
A CONTENTS, ASSESSING KNOWLEDGE OF
RETIREMENT BEHAVIOR
B RETIREMENT-INCOME-RELATED DATA SETS
C EXAMPLES OF RETIREMENT-INCOME-RELATED
PROJECTION METHODS
D MAJOR ASPECTS OF DYNASIM2 AND PRISM
REFERENCES
BIOGRAPHICAL SKETCHES OF PANEL MEMBERS AND STAFF
INDEX
Six
165
175
180
193
199
213
228
233
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Acknowledgments
At the outset, I wish to thank the members of the Panel on Retirement Income
Modeling for their generous contributions of time and expert knowledge. Panel
members took responsibility for summarizing the state of knowledge and identi-
fying the needs for data, research, and modeling in particular subject areas. Sev-
eral members also reviewed elements of existing retirement-income-related
projection models. The members thought and worked hard to develop recom-
mendations that would enhance the quality of data, research, and models and
thereby the quality of national debate about retirement income security policy
issues. The fruits of their labors will be evident in reading the report, but I feel it
is necessary to go beyond that. This panel was unusual in the extraordinary
knowledge, intelligence, and motivation it brought to our work. It has been a
genuine pleasure to work with them.
At the same time, it is also evident that the best panel may not produce its
best possible report unless it has the right study director. We did. Connie Citro,
who has worked on many influential National Research Council reports, was the
invaluable catalyst and driving force behind our work. She has the ability to
decipher the real intent and conclusions of a panel when others see only chaotic
discussion. She has the skill of keeping a panel directed toward producing
results. And Job has nothing on her when it comes to dealing with the report
review process. She is surely a model for what any chair would want in a study
director.
The panel is greatly indebted to the people who presented and discussed
papers at the panel's Conference on Modeling the Impact of Public and Private
Policies on Retirement Behavior and Income: What Do We Know and What Do
x~
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xt!
ACKNOWLEDGMENTS
We Need to Know? The six papers that were prepared for the conference repre-
sent comprehensive reviews of the literature in areas that are important to under-
stand for retirement income policy analysis. They were subsequently revised on
the basis of discussants' and panel members' comments and published in
Hanushek and Maritato (1996; see Appendix A for contents). The panel also
thanks Kevin Hollenbeck, W. E. Upjohn Institute for Employment Research, who
prepared a background paper on existing retirement-income-related projection
models, and Marilyn Moon, The Urban Institute, who prepared a background
paper on factors in health care costs. Both were useful to the panel in its delibera-
tions.
The panel thanks the staff of our sponsor agencies, the Pension and Welfare
Benefits Administration in the U.S. Department of Labor, the National Institute
on Aging in the U.S. Department of Health and Human Services, the Pension
Benefit Guaranty Corporation, the Social Security Administration, and TIAA-
CREF, for their help and guidance throughout the project. In particular, the panel
is grateful to Richard Hinz and David McCarthy, Pension and Welfare Benefits
Administration, and to Richard Suzman, National Institute on Aging. The panel
also acknowledges the contributions of staff members of many federal agencies
and private organizations who gave generously of their time to provide back-
ground information for the panel on data sources and models and to offer insight-
ful comments at the panel's conference and other meetings.
The panel is grateful to Eugenia Grohman, Associate Director for Reports of
the Commission on Behavioral and Social Sciences and Education (CBASSE),
for her fine technical editorial work, which contributed greatly to the readability
of this report.
Nancy Maritato, research associate with CBASSE, assisted the panel in some
of its meetings and played an invaluable role in working with the authors to
complete the volume of conference papers.
Candice Evans and Agnes Gaskin served ably as project assistants for the
panel. Agnes made admirable logistical arrangements for the panel' s first meet-
ing and conference. Candice arranged the panel's third, fourth, and fifth meet-
ings and coped cheerfully and competently with multiple rounds of revisions to
this report, to the volume of conference papers, and to the panel' s interim report
(released in June 1995~.
Overall, the panel was ably assisted in its endeavors at every stage of the
process by many people, whom we are honored to thank.
Eric A. Hanushek, Chair
Panel on Retirement Income Modeling
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