Today, the retirement income system — comprising Social Security and employer-sponsored pension plans — is contracting. To compensate, people need to work longer to ensure an adequate income over many years throughout retirement. A few additional years in the labor force can make a big difference. Working longer directly increases current income; it avoids the actuarial reduction in Social Security benefits; it allows people to contribute more to their 401(k) plans; and it shortens the period of retirement.
Indeed, people have begun to respond. The long-term trend toward earlier retirement ages came to a halt in the mid-1980s, and labor force participation rates at older ages actually began to increase in the mid-1990s.
The challenge is to reconcile this uptick in work effort with the benefit claiming data published by the Social Security Administration (SSA). These data, which are released annually, show the percent of workers claiming benefits who are age 62, 63, 64, etc. These data suggest that the proportion of older men who claim their Social Security benefits as early as possible has not changed at all over the last 25 years. The problem is that when the size of the group turning age 62 is increasing, the annual claim data can provide a misleading picture. In order to accurately follow claiming behavior over time, one must look at behavior by cohorts. That is, of the potential claimants turning 62 in a given year, what percent claimed benefits as soon as possible?…