The Effect of Early Claiming Benefit Reduction on Retirement Rates



This paper examines the effect of the increase in the Social Security Full Retirement Age (FRA) and the associated decrease in benefits for early claimants on retirement rates at ages 62 to 65.  It uses information on age, sex, and labor force participation from the monthly Current Population Survey from 1976 to 2019.  Critical components of the analysis include a difference-in-difference framework, comparison of three measures of retirement status, estimation of nonparametric and parametric models, and a test of the assumptions underlying the difference-in-difference approach.  Although our model satisfied that test, the results do not guarantee that our specification is valid.

The paper found that:

  • The increase in the FRA decreased the retirement rate at age 62 by about 5 percentage points (or 30 percent) for men and by about 2 percentage points (or about 20 percent) for women.  The retirement rate at age 63 to 65 was not affected.
  • Estimates of the parametric model show that a 1 percent increase in the early claiming reduction decreases the retirement rate by between 0.7 and 0.9 percentage points for men and between 0.2 and 0.4 percentage points for women.

The policy implications of the findings are:

  • Our findings can inform evaluations of policy proposals to further increase the Social Security FRA.
  • Our findings contribute to the understanding of the effects that the availability and generosity of pension benefits have on retirement decisions.

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