Rise in the Full Retirement Age and Early Retirement Decisions

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Hannah Bae, University of California, San Diego

Continuous efforts have been made to alleviate fiscal pressure on the Social Security program due to increases in life expectancy and the aging population. The Social Security Amendments of 1983 increased the full retirement age (FRA) by two months per birth year for Americans born from 1938 to 1943. As the earliest age eligible to claim benefits has been fixed at 62 since the 1960s, the reform aims to incentivize workers to delay retirement and induce a longer work life for older Americans. I estimate a regression discontinuity design (RDD) that exploits the fact that individuals born in January face higher Social Security benefit cuts compared to their December-born counterparts among individuals born between 1937 and 1943. In this paper, I employ a large-scale panel of job-based health insurance claims provided by large U.S. firms. Using a family identifier to link spouses and dependents to their plan holders in the data, I investigate the impact of the 1983 reform on job retention and spousal labor supply. First, I identify the causal effect of reduced Social Security benefits on job retention at ages 62-64. I explore the extent to which increased job retention is attributable to delays in early retirement. In addition, I construct a sample of employees with an older spouse born in January 1937 through December 1943 to study the reform’s spillovers to family members who haven’t reached the earliest age to claim benefits yet. Using this sample, I estimate a RD design in older spouse’s birthdate to identify the impact of reduced Social Security benefits on younger spouse’s job retention. To assess the validity of my findings, I construct a sample of employees facing the same FRA under the reform and check whether job retention outcomes are smooth at the placebo cutoff. Furthermore, taking advantage of the richness of health claims data, I investigate how the treatment effects vary by demographic and health characteristics to elucidate the underlying mechanisms of the main results.