Sticky Ages: Why Is Age 65 Still a Retirement Peak?

Abstract

When Social Security’s Full Retirement Age (FRA) increased to age 66 for recent retirees, the peak retirement age increased with it.  However, a large share of people continue to claim their Social Security benefits at age 65.  This paper explores two potential explanations for the “stickiness” of age 65 as a claiming age: Medicare eligibility and workers’ lack of knowledge about their future Social Security benefits.  First, we analyze the impact of Medicare eligibility by comparing two groups – one has an FRA of exactly 65; the other, between age 65 and 2 months and age 66.  We find that the group with later FRAs who do not have access to retiree health benefits through their employer are more likely to claim Social Security at age 65.  We interpret this finding as evidence that Medicare eligibility persuades more people to retire, because they can begin receiving federal health coverage.  Individuals without access to retiree health insurance at work are 7.5 percentage points more likely to retire soon after their 65th birthdays and are 5.8 percentage points less likely to delay retirement until the FRA than those with that insurance.  This result fits into extensive research showing that access to health insurance is an important component of the retirement decision.  On the question of whether misinformation about Social Security benefits may drive individuals to claim at age 65, we find that some individuals are unable to accurately forecast their retirement benefits.  However, our analysis suggests that there is no relationship between this confusion and the age 65 peak for claiming Social Security.