Future Social Security Entitlements and the Retirement Decision

Concepedia

The Review of Economics and Statistics · 2007 · 293 citations · 16 references

Concepts

Social Security IncentivesEconomicsPublic PolicyEconomics Of AgingSocial SecurityHealth PolicySocial Security SystemIncome SecuritySocial Security PolicyRetirement DecumulationSecurityBusinessLabor Market OutcomeSocial PolicyRetirement DecisionUnemployment

TL;DR

A critical question for Social Security policy is how program incentives affect retirement behavior. The study uses the Health and Retirement Survey to examine how Social Security incentives influence male retirement decisions. The authors employ forward‑looking models with HRS data, in which individuals evaluate Social Security incentives across all future years. They find that forward‑looking Social Security incentive measures significantly affect retirement, private pension incentives have comparable effects, and policies that raise incentives to work at older ages can substantially reduce older workers’ labor‑force exit rates.

Abstract

A critical question for Social Security policy is how program incentives affect retirement behavior. We use the Health and Retirement Survey (HRS) to examine the impact of Social Security incentives on male retirement. We implement forward-looking models whereby individuals consider the incentives to work in all future years. We find that forward-looking incentive measures for Social Security are significant determinants of retirement. We also find that private pension incentives have roughly similar effects. Our findings suggest that Social Security policies that increase the incentives to work at older ages can significantly reduce the labor force exit rate of older workers.