Behavioral Effects of Social Security Policies on Benefit Claiming, Retirement and Saving

Published: 2012


This paper specifies three behavioral variants of a structural model of retirement and saving to bring predicted Social Security claiming rates closer to the rates observed in the data. The model, estimated with Health and Retirement Study data, is used to examine three potential policies: increasing early entitlement age, increasing normal retirement age, and eliminating payroll taxes after normal retirement age. Behavioral responses to increasing early entitlement age and eliminating the payroll tax are not affected by the behavioral variant used. Predicted effects of increasing the normal retirement age exhibit more sensitivity. Heterogeneity shapes the responses to these policy changes.

Key Findings

    • We use a retirement model that includes Social Security benefit claiming as an outcome to determine the effects of proposed changes to Social Security.
    • Increasing the early entitlement age to 64 increases full-time employment at ages 62 and 63 by approximately 12 percentage points. The spike in retirement from full-time work, which presently occurs at age 62, would be shifted to age 64 by this change.
    • Increasing the normal retirement age to 67 for those who had an age 65 normal retirement age increases full-time work by substantially less than the increases caused by raising the early entitlement age.
    • Eliminating the payroll tax after the normal retirement age reduces full-time work by between 0.5 and 1 percent between age 60 and age 64 and increases full-time work by between 1 and 2 percent at age 65 and thereafter.