The Impact of Risk and the Financial Crisis on Perceptions of Privatized Social Security and Retirement Planning

James Choi, Justine Hastings, Unika Shrestha

NBER Retirement Research Center Paper No. NB 12-07
Issued in September 2012

How do investors from broad backgrounds understand investment risk? How does exposure to negative shocks impact their valuation of risk, their valuation of social security, and their retirement knowledge and planning? We use a new household survey in Mexico's privatized social security system linked to administrative records form the privatized Mexican Social Security System to examine these questions. Using policy-induced exogenous shocks to investment returns around the financial crisis and a representative 7,800 person household survey data set linked to administrative data we will estimate how negative returns to social security accounts affect knowledge of social security system rules, risk preferences, value of the social security account and plans for retirement. We find some evidence that low or negative returns cause increased financial knowledge among men, and that high returns increase reliance on and value of the retirement account and financial instruments more generally among women. Our results contribute new insights into how individuals understand and learn about investment risk and plan for retirement with personal ownership over retirement accounts.

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