Models of inter-temporal choice need to specify how decision makers form expectations about future events. There is increasing consent in the economics profession that data on expectations can be used to model how people form their expectations and update them if uncertainty resolves or new information is acquired. In this project we will study individuals'expectations about future Social Security and pension benefits, their evolution over time, and how they relate to realizations. This is a well-suited context for studying expectations since retirement and saving for retirement is one of the most important inter-temporal decision problems for most individuals, in which expectations on Social Security and pension benefits play an important role. Understanding how people prepare for retirement is also of more general interest for understanding retirement decisions and the well-being of the elderly. The recent literature finds that workers lack information or are misinformed about future Social Security and employer provided pension benefits. This may be rational for people who are far from retirement and for whom detailed information would have only minor implications for current economic behavior, such that the cost of information acquisition is below the expected benefits. When people get closer to retirement, misinformation may induce individuals to make decisions that could harm their long-term financial security. Little is known about the timing and the effectiveness of individuals'retirement planning activities, largely due to the lack of detailed micro-data on this topic, and in particular the lack of panel data. The Health and Retirement Study (HRS) asks respondents if, when, and how much they expect to receive in benefits from Social Security. The same questions are asked for expected income from Defined Benefit pensions. To improve our understanding of expectation formation and its importance in retirement planning this project will use these data to study individuals'expectations of Social Security and pension income and their evolution over time. In addition, we will analyze the dynamics of deviations between the respondents'subjective expectations and objective forecasts based upon Social Security rules and details of employers'pension plans. Finally, we will also analyze the deviations between these expectations and the benefits respondents actually receive once they have started to claim.
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