# Presentation: 248184

## 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

- Economics
- Sociology
- Demography

- Medicine
- Public Health
- Psychology

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

## 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

## 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

## Scientific Productivity of HRSHRS Publications, 1993-2005: Cumulative Count by Type

**Scientific Productivity of HRS****HRS Publications, 1993-2005: ****Cumulative Count by Type**

**Cumulative Count: June 15, 2005**
-     Journal Publications             510
-     Books and Book Chapters     83
-     Dissertations                          59
-     _Working Papers                    326_
-                 Total                         978
**On average, one new journal article using HRS is published every 5 days****                                             **

**Notes:**
The HRS provides public use data designed to allow the full power and creativity of America’s scientific community to address the challenges of an aging population. 

HRS scientific productivity is shown by the accelerating growth of research papers which use the HRS, numbering over 500 published papers and nearly 1000 items in total.  The annual rate of publications has been increasing. In 2004 a paper using HRS appeared once every 5 days, suggesting that the cumulative total will experience continued accelerated growth in the future.

## 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 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

- 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

**New Directions for HRS: ****1. Biomarkers and Physical Performance**

## 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
- were fully retired and another
- 6-7 percent were partly retired
- The process of retirement begins
- in the early 50’s, accelerates
- about 60, reaches a sharp
- spike at age 62 and another
- sub-spike at age 65

- 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

- Source: J. Gruber and D. Wise, _Social Security and Retirement Around the World _(NBER, 2000)

**Percent Early Retirement**

**Percent Penalty for Continued Work**

- 20

- 40

- 60

- 80

- 100

- 30

- 40

- 50

- 60

- 70

**US**

**Sweden**

**Canada**

**Spain**

**Germany**

**UK**

**France**

**Holland**

**Belgium**

**Italy**

## 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
- Retirement from 1850’s
- through mid-1980’s
- Labor force participation
- at older ages flat since then
- Possible reversal:
- Early boomer cohort in HRS
- (born 1948-53) expects to
- work more than earlier
- Cohorts

- 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

- Source:Scholz, Seshadri and Khitatrakun (forthcoming)

**Optimal**
**Net Worth**

**Observed**
**Net Worth**

- Most people
- have ***more***
- net worth
- than “optimal”!

## Inequality in Health, Wealth and Cognition

## Mean Net Worth by Health of Husband and Wife

** **

**Mean Net Worth by Health of Husband and Wife**

**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.

**Strong Correlation Between Health and Wealth**

**Understanding this correlation requires longitudinal data from **
**Economics**
**Health**
**Sociology/Demography**
**Psychology**

## “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

**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

**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
**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.)

**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
**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

- 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

- Retiree Rx coverage
- Short term, stay put
- Medicaid
- Short term, automatic enroll, maybe wrong meds
- Medicare Advantage (HMO)
- Short term, don’t need to do anything
**Other Low-income**
**Have to apply for “extra help,” choose plan**
**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)

- Source: D. Weir, “The Unbalanced Distribution of Cognitive Demands and Cognitive Resources for Part D Decision-Making.”

## Groups Differ Widely in Cognitive Resources

- Source: D. Weir, “The Unbalanced Distribution of Cognitive Demands and Cognitive Resources for Part D Decision-Making.”

## Groups Differ Widely in Health Status

- 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

- Source: D. Weir, “The Unbalanced Distribution of Cognitive Demands and Cognitive Resources for Part D Decision-Making.”