Social Security, Pensions and Retirement Behavior Within the Family

This paper further extends our efforts to understand how household decisionmaking works and the relation of decisions made within the household to incentives from Social Security and pensions. A structural model of family retirement decision making is estimated using U.S. data from the Health and Retirement Study (HRS), which includes comparable labor market histories for husbands and wives. Compared to our earlier results, the coefficient on the age variables are substantially lower when parameter estimates are based on the HRS data. This is particularly important because the responsiveness of retirement to the incentives created by pensions and other policies is greater the lower the coefficient on the age measure. Our findings also provide some further insight as to the source of the interdependence in the retirement behavior of husbands and wives. Our earlier results suggested that the appearance of the spouse’s retirement measure in the utility function of each individual was responsible for much of the coordination in retirement that we observe between spouses. Here we find that a measure of how much each spouse values being able to spend time in retirement with the other accounts for a good portion of that apparent interdependence. When we include this measure, the simulations almost double the frequency of predicted joint retirements. Moreover, the entire effect of the wife’s interdependence is due to the difference between those who value spending time in retirement with their spouse and those who do not. It also remains true that husbands are more influenced by whether their spouse is retired, with half of this effect reflecting their response to whether they enjoy the idea of spending time in retirement with their spouse. With regard to the effects of policy alternatives that would privatize social security, or divide benefits between spouses, the policies seem to have only a limited effect on retirement outcomes. Because social security is roughly actuarially fair, and the different schemes for dividing benefits have only a modest effect on the rewards, it would not be reasonable to expect large effects. At some ages, such as 65, there may be as much as a 6 percent increase in the old age work force under privatized accounts that effectively raise the reward to work at older ages compared to the current program.