Mortality Risk and Early Retirement

Published: 2000
Project ID: UM00-05


The leading theory used to understand retirement decisions is the life cycle model, which suggests that people save during their working years, when their income is high, so that they will have money to spend during their retirement, when their income is low. An implication of the theory is that people who expect to be long-lived will retire at a later age because they will have to finance more years of retirement. Because most people claim Social Security benefits shortly after retiring, their expectations about survival could affect the Social Security program by altering the ratio of retirees to workers. In the longer term, increases in objective life expectancy could translate into later retirement patterns. In this study we address the following questions: Do those who expect to be long-lived retire later? If so, how does life expectancy affect the likelihood that they will claim Social Security benefits before the normal retirement age? We find only limited support for an effect of expected length of life on retirement and claiming. While for many groups of retirees it is economically advantageous to delay claiming Social Security benefits past age 62, very few do so. Among the three other predictions of the lifecycle model about Social Security claiming behavior, we find support for only one: high rates of return on alternative investments lead to early claiming. We found no support for the hypothesis that high wealth individuals delay claiming or for the hypothesis that high levels of pension or Social Security wealth lead to early claiming. The high rates of Social Security claiming that occurs immediately upon turning 62 and the corresponding reluctance to annuitize, is a major puzzle.