Full Retirement Age Research Articles

The Nomenclature of Social Security Retirement Benefits Qualitative Exploration of Alternate Terminology

This project report presents findings from the qualitative component of a study to examine American’s understanding of Social Security terminology regarding retirement, and to test responses to alternate names for those terms. Phase 1 of this study was a short survey of 1,260 respondents of the Understanding America Study (UAS) panel, which assessed whether the terms “Early Eligibility Age” (EEA), “Full Retirement Age” (FRA) and “Delayed Retirement Credits” (DRC) were well understood by respondents. The study’s second phase, which is the focus of this report and described in more detail below, consists of qualitative interviews with a small number of respondents selected from the UAS panel. The third and final phase of the study will be an experiment run through the UAS to test participants’ responses to and understanding of alternate names for Social Security retirement-related terminology.

Managing Longevity Risk by Implementing Sustainable Full Retirement Age Policies

AbstractIn this article, we investigate the effect of five policies to link the retirement age to (forecasted) survival probabilities. We investigate the effect of these policies on the distribution of the (future) full retirement age and on longevity risk in the discounted future payments. Our investigated policies effectively hedge longevity risk, but do lead to substantial uncertainty in the retirement age and the expected number of years in retirement. We find that policies based on present values lead to a higher annuity factor than policies based on expected remaining years in retirement. Our results can explain the differences between the proposed automatic rule to adjust the full retirement age in the United Kingdom (defined contribution pension schemes) and the Netherlands (defined benefit pension schemes).

Does Age-Related Decline in Ability Correspond with Retirement Age?

While declines in physical and mental performance are inevitable as workers age, they are not uniform across the various systems of the body – some physical and cognitive abilities decline much earlier than others. This variance implies that workers in occupations that rely on skills that decline early may be unable to work until late ages, even as policy changes like increases in the Full Retirement Age (FRA) encourage them to. Researchers often estimate models of early retirement that include a control for whether a worker is in a blue-collar job – basically assuming that less-physical white-collar work allows longer careers. But this assumption ignores the fact that even workers in white-collar occupations may find themselves relying on skills that have declined. This paper instead reviews the literature on aging and constructs a Susceptibility Index meant to reflect how susceptible an occupation is to declines in ability, regardless of whether the occupation relies on physical abilities (as blue-collar occupations do) or cognitive ones.

Will the Average Retirement Age Continue to Increase?

Using Health and Retirement Study (HRS) data, this paper examines how changes in individual workers’ past and present pension coverage, retirement incentives in Social Security, and retiree health insurance have contributed to retirement decisions for the 1931-1953 birth cohorts. It then uses these findings to project retirement behavior for the 1955-1987 cohorts in the Survey of Income and Program Participation (SIPP). A key assumption is that younger cohorts will have no defined benefit (DB) pensions or retiree health coverage in their future jobs. A key limitation is the assumption of a stable relationship in each successive cohort between each factor and labor market decisions.The paper found that: The decrease in DB pension coverage from previous jobs and the decline in retiree health coverage between the HRS and SIPP cohorts each push the retirement age up by approximately one year, all else equal. The one-year increase in Social Security’s Full Retirement Age is associated with a 0.3-year increase in the retirement age, all else equal. After accounting for other differences between the HRS and SIPP cohorts, the average retirement age is projected to rise by one year over the next three decades, from age 61.8 to 62.8. The policy implications of the findings are: We anticipate that changes in pensions, retiree health benefits, and Social Security that are already in motion will continue to increase, albeit slightly, the average retirement age. Nonetheless, policies aimed at extending retirement ages may still be necessary, given that a one-year retirement age increase is likely to be insufficient to permit future cohorts to achieve a sufficient standard of living.

Effects of social security policies on benefit claiming, retirement and saving

An enhanced version of a structural model jointly explains benefit claiming, wealth and retirement, including reversals from states of lesser to greater work. The model is estimated with Health and Retirement Study data. Alternative beliefs about the future of Social Security affect claiming behavior. Effects of three potential policies are also examined: increasing the early entitlement age, increasing the full retirement age, and eliminating the payroll tax for seniors. Predicted responses to increasing the full entitlement age are sensitive to beliefs.

Resetting Social Security

Social Security retirement benefits were first introduced in 1935 as a financial safety net for a large and rapidly growing older American population. The program was intended to be economically selfsustaining, but population aging and rising life expectancies threaten the program's solvency. The 1983 Social Security Amendments mandated that the full retirement age increase to 67 by the year 2027. In this essay, we present evidence demonstrating that the rate of improvement in life extension at older ages accelerated after 1983. If the 1935 ratio of working years to retired years is maintained, early and full retirement ages of 66.5 and 69.4, respectively, were justified in 2009. Additional delays in the age of eligibility beyond those currently in effect would place significant financial burdens on individuals with lower life expectancies, the poor and near-poor, and the very old, and – absent additional reform – would exacerbate existing unequal access to entitlements within the system.

Why Retirees Claim Social Security at 62 and How It Affects Their Retirement Income: Evidence from the Health and Retirement Study

Despite higher monthly benefits for those who delay, many people still claim Social Security retirement benefits at age 62, the earliest age of eligibility. This study uses data from the Health and Retirement Study to examine the demographic and occupational characteristics associated with early claiming, as well as the retirement income of early claimers compared with those who delay. The authors find that several work-related factors may cause people to claim Social Security benefits early and suggest they may face challenges in continuing to work at older ages. For example, those who worked in physically demanding blue-collar jobs were 55% more likely to claim benefits prior to their full retirement age, after controlling for other factors, compared with those in all other occupations. Other factors, such as having lower expectations of living to age 75 significantly increase the likelihood of claiming early. The median income for those who claim at full retirement age or later was 45% higher after claiming benefits than for those who claimed early and 33% higher at age 72. Even when comparing early and delayed claimers with similar total income after claiming, average household income for delayed claimers was higher at age 72 than for early claimers.

Have We Finally Achieved Actuarial Fairness of Social Security Retirement Benefits and Will it Last?

This paper develops a framework to analyze the actuarial adjustments faced by American workers who claim Social Security benefits before or after their Full Retirement Age (FRA). We derive the conditions under which these adjustments are “actuarially fair” (or “neutral”) and develop measures to characterize the deviation from the fair form. Fair adjustment schedules are increasing at an increasing rate in take-up age and become flatter as longevity rises. We document that the actuarial fit has improved across generations. Our baseline 3% discount rate scenario estimates that the current schedule deviates from its fair form by less than 1% for average-mortality beneficiaries, compared to 5.1% and 4.0% for male and female beneficiaries in 1980, respectively. The improvement is largely due to the increases in the Delayed Retirement Credit. For men, gains in life expectancy combined with the increase in the FRA also contributed to the improved fit. We predict that the designated increase in the FRA to age 67 will have little effect on the actuarial fit. We investigate schedules reflecting (further) increases in the retirement ages, as recommended by the President’s 2010 Fiscal Commission, and propose alternatives. We also discuss results from the analysis of the adjustments to spousal and widow(er) benefits.

Socioeconomic disparities in health among older adults and the implications for the retirement age debate: a brief report.

Policy debates about raising the full retirement age often neglect socioeconomic health disparities among U.S. workers. In response to this gap, we analyzed educational differentials in health among middle-age and older adults and translated the findings into age equivalents. We used the nationally representative 1997-2010 National Health Interview Surveys data on white and black adults aged 40-74 (N = 341,060). Using nonparametric regression (locally weighted scatterplot smoother) stratified by sex, race, and three educational levels, we determined age-specific prevalence of fair or poor self-rated health and any activity limitation, and compared the ages at which different demographic groups experienced a specific level of these two outcomes. Results varied slightly across health outcomes and demographic groups but generally showed that college-educated white men reported a level of limitations at age 70 that is equivalent to the levels reported by high school graduates at age 40-55. High school dropouts reported worse health at age 40 than the college educated at age 70, a gap of more than 30 years. Our findings revealed enormous health inequalities in self-reported health, using a powerful and intuitive age-equivalence formulation. They highlighted the importance of considering health disparities in discussions about raising the retirement age, both in terms of fairness and feasibility.

The Willingness to Pay, Accept and Retire

Today’s pay-as-you-go social security systems are put under pressure due to increasing life expectancy, the baby boomers generation entering retirement and a decreasing effective retirement age. In most developed countries workers retire remarkably earlier than the full retirement age, even if economic reasons suggest not to. Conducting a large online survey, this paper relates the willingness-to-accept/ willingness-to-pay disparity to the retirement decision and shows that the presentation of the decision problem strongly influences the outcome. The willingness-to-accept late retirement is more than twice as high as the corresponding willingness-to-pay. We also show that this disparity is driven by loss aversion. Using the reduction in German social security benefits for early retirement as a market price also shows that the presentation in a willingness-to-accept frame can induce early retirement. Results are robust when the analysis is repeated with a representative panel survey for Germany (SAVE panel).

Social Security Benefit Claiming and Medicare Utilization

Are early Social Security claimers too sick to work? We linked Health and Retirement Study data to Medicare claims to study health care utilization at ages 65 and 70. We find that Social Security Disability Insurance recipients use more health care on average than those who never received DI. At age 65, Medicare spending on SSDI recipients was $4,440 more than spending on retirees who claimed Social Security benefits prior to Full Retirement Age (FRA) and $4,727 more than those claiming at FRA. Differences in Medicare spending persist at all points of the spending distribution. They are robust to a variety of methodological approaches including general linear models, quantile regression, and reweighting, and in specifications limiting comparisons to beneficiaries claiming benefits at initial EEA. Our results suggest that poor health may contribute to EEA claiming decisions, though this group is considerably healthier than those who were too disabled to work and qualified for DI benefits.

Do stronger age discrimination laws make Social Security reforms more effective?

Supply-side Social Security reforms intended to increase employment and delay benefit claiming among older individuals may be frustrated by age discrimination. We test for policy complementarities between these reforms and demand-side efforts to deter age discrimination, specifically studying whether stronger state-level age discrimination protections enhanced the impact of the 1983 Social Security reforms that increased the full retirement age (FRA) and reduced benefits. The evidence indicates that, for older individuals for whom early retirement benefits fell and the FRA increased, stronger state age discrimination protections were associated with delayed benefit claiming and increases in employment, with benefit claiming pushed from 65 to the new FRA, and increased employment after age 62 and age 65 that is then curtailed at the new FRA.

How Do the Changing Labor Supply Behavior and Marriage Patterns of Women Affect Social Security Replacement Rates?

This paper seeks to determine the impact of the changing lives of women – increased labor force participation/earnings and reduced marriage rates – on Social Security replacement rates. First, our estimates, based on the Health and Retirement Study and Modeling Income in the Near Term, show that Social Security replacement rates have dropped sharply at both the household- and individual-level, and the decline will continue for future retirees. Our second finding is that this aggregate change masks a complex relationship between replacement rates and the marital status and income levels of individuals. The decline in replacement rates over time is largest for married couples with husbands whose earnings are in the top tercile. Decomposing the reasons for the overall decline shows that increases in the labor supply and earnings of women explain more than one-third of the change. In contrast, the impact of changing marital patterns is relatively small. Much of the remaining explanation rests with the increased Full Retirement Age and changing claiming behaviors.

Optimizing Social Security Benefits: Strategies For Married Couples With Above Average Age Differences And With Ratios Of Primary Insurance Amounts Of 0.5 Or Better

The complex rules and inter-related choices regarding spousal and survivor benefits imbedded in the social security system make the optimization of lifetime benefits for married couples a complex decision which can reduce or increase lifetime benefits significantlyeven hundreds of thousand dollars. This paper focuses on strategies for couples with above average age differences and with ratios of Primary Insurance Amount (PIA) of 0.5 or better. In regards to age differences, about 40% of marriages have 4 or more years in age difference between spouses. The difference of four or more years is important because it means that one spouse is at or past full retirement age (FRA) when the other spouse becomes 62. Since both spouses must be eligible for regular social security benefits (past 62 years of age) to jointly execute an optimization strategy, the time period to execute strategies for couples is reduced by above average age differences. This paper evaluates the financial benefits of three major strategies for couples with above average age differences and with PIA ratios of 0.5 or more: (1) Use Restricted application for spousal benefits; (2) Delay start of benefits until one spouse has reached 70 years of age; and; (3) Early start for benefits as soon as the youngest spouse reaches 62 years of age. Each strategy is affected by the differences of age between the individual spouses, their individual work records (PIA ratio), and their individual life expectancies. The analytical framework presented in this paper illustrates that couples can increase life time benefits by hundreds of thousands of dollars by choosing the appropriate strategy.

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

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.

Barriers to Later Retirement: Increases in the Full Retirement Age, Age Discrimination, and the Physical Challenges of Work

Policy changes intended to delay retirements of older workers and extend their work lives may run up against demand-side barriers from age discrimination, and supply-side barriers owing to rising physical challenges of work as people age. We study three questions. How do age discrimination protections affect labor market transitions of workers encouraged to work longer by increases in Social Security’s Full Retirement Age (FRA)? How do physical challenges at work influence employment transitions of older workers for whom public policy is trying to delay retirement? And what role do stronger age discrimination protections play in helping workers facing physical challenges at work?We find that stronger state age discrimination protections increase employment and hiring for older workers caught by increases in the FRA. We also find that physical challenges pose a barrier to extending work lives, although some workers with physically-demanding jobs are able to mitigate these demands -- either at new jobs or with the same employer. However, for the most part stronger age discrimination protections do not appear to contribute to older workers’ ability to mitigate physical challenges at work.

Job Demand and Early Retirement

Policy initiatives such as increases in the full retirement age implicitly reduce benefits for early retirement. Yet research suggests that those in physically demanding jobs may be particularly adversely affected by such policies. We examine to what extent physical job demand relates to early retirement decisions in a population of aging manufacturing workers. We follow a cohort of approximately 1,500 stably employed male Alcoa employees aged 51-58 in 2001 followed forward to 2008. We use a variety of models to examine whether externally rated physical job demand at middle age is related to early retirement. We also examine whether pension eligibility and payouts induce earlier retirement, especially for those with more physically demanding jobs, while accounting for wage differentials, injury history, and underlying health. Our results suggest that workers whose jobs have high physical demand retire earlier after accounting for the wage differential and health. We also find that the minority of workers who transition to lower demand jobs, due to previous injury or health issues, are less likely to retire early. Finally, while we find evidence that pension eligibility and wealth accumulation induce earlier retirement, there was limited evidence of a difference by job demand.

Changing Social Security to Achieve Long-Term Solvency and Make Other Improvements - Background Factors, Issues, Options

For years those responsible for Social Security and policy analysts have acknowledged that the present statutory framework for determining and financing program benefits is unsustainable. Nonetheless, despite the work of Presidential commissions, countless Congressional hearings, proposals for reform advanced by individuals and groups across the political spectrum, changes to Social Security that would restore its fiscal balance into the foreseeable future have repeatedly been deferred or deflected by the nation’s law-makers. This paper aims to assist analysis of and reflection on the range of options for ensuring Social Security’s future while not adding yet another solvency proposal to the already ample supply. It begins with several background observations. These are followed by a discussion of personal (or private) accounts to which former President George W. Bush gave salience and which continue to be included among the talking points of politicians hostile to Social Security’s fundamental structure. Next the paper reviews the more likely program changes that would (unlike personal accounts) directly address Social Security’s long-term deficit. That section is followed by one sketching possible revisions in the program’s benefit structure designed to achieve ends other than reducing Social Security expenditures. The paper concludes with some observations on the role that framing has played in past debates over Social Security’s future. Finally, there is an appendix explaining the central terms and components of the current program. It is provided for readers who might otherwise be unclear about the meaning or implications of changing Social Security’s Primary Insurance Amount formula or its Full Retirement Age.

Today’s Low Interest Rate Environment and SocialSecurity Claiming Decisions

The Social Security Administration set the reduction in benefits for beginning benefits before full retirement age (FRA) and delayed retirement credits for delaying benefits until after FRA to be approximately actuarially fair for someone with an average life expectancy of 84 years, assuming a real risk-free rate of 3%. Consequently, given a 3% real rate and life expectancy of 84, the present values of Social Security benefits are approximately the same no matter what age benefits begin. Given today’s 0% real rate, the present values are approximately the same if a single individual lives to 80. Today, a single individual with average life expectancy of 84 will maximize the present value of benefits by delaying benefits until about 69. Furthermore, the authors explain why today’s low real rate should influence the starting date for each partner of a married couple.

How Long Should An Individual At Full Retirement Age Delay Receiving Social Security Benefits?

n important topic for many individuals approaching 66 in 2011 is whether to start social security benefits at full retirement age (FRA) or to delay the benefits in order to gain greater payouts in the future. In 2009, the bonus for delaying the start of benefits rose to about 8% per year. By delaying benefits for four years (to age 70), it is possible to increase benefits by 38 to 55 percent per month for the remainder of the retirees life. In addition to the higher monthly benefits from delaying start of benefits, there are also substantial benefits for high income retirees in relocating to lower tax states. Also, given that the remaining age to death for most retirees at FRA is clearly finite, one would expect to see some value in discounting future earnings. Our paper evaluates accumulated benefits over a 25 year time horizon to assess retirement decisions post FRA. We consider three examples of accumulated benefits: (1) constant dollar accumulated benefits without discount or taxes; (2) alternative rates of discount of the future stream of earnings without income taxes; and (3) discounted after tax benefits. Each scenario is evaluated to assess whether delaying social security benefits past FRA is a profitable idea. Based upon our analysis, any discount rate in excess of 5% of the available after-tax returns provides no breakeven age within expected life ages. That is, at high discount rates, it is always better to start benefits at FRA or with only short delay once FRA is reached, if the individual wishes to maximize accumulated benefits over the expected life. At discount rates of less than 3%, the accumulated benefits may be increased within the expected life span by delaying the start of benefits. If no discount rate is applied, accumulated benefits are maximized by delayed start since all breakeven ages occur within life expectancy. In addition, we find that the negative impact of taxes on accumulated benefits can be as large as a discount rate of 3% on accumulated benefits. For high income retirees, a strategy of (1) relocating to lower tax states and (2) delaying the start of benefits can provide substantial increases to accumulated benefits. Finally, we note that the retirement decision is not entirely financial, but that many factors including family, spouse, work climate, health, expected life span, and fear of running out of money lead individuals into making decisions that may not optimize the present value of future benefits.