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How Did the Elimination of the Earnings Test Above the Normal Retirement Age Affect Retirement Expectations?

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Author Info

  • Pierre-Carl Michaud

    (RAND)

  • Arthur vanSoest

    (RAND & Tilburg University)

Abstract

This study examines the effect of the 2000 repeal of the earnings test above the normal retirement age on retirement expectations of workers aged 51 to 61 - their probabilities to work past age 62 and 65 as well as the age at which they expect to start claiming old age social security benefits. We use administrative records linked to the HRS to create variables that accurately reflect the change in financial incentives. For men, we find results in line with theoretical predictions on the probability to work after age 65. For example, men whose marginal wage rate increased when the earnings test was repealed, showed the largest increase in the probability to work full-time past normal retirement age. For women, we do not find significant results, possibly due to omitting spouse benefits and their interaction with the earnings test. We also do not find significant evidence of effects of the repeal of the earnings test on the probability to work past age 62 or the expected claiming age. On the other hand, for those reaching the normal retirement age, deviations between the age at which Social Security benefits are actually claimed and the previously reported expected age are more negative in 2000 than in 1998, suggesting that the repeal has increased claiming immediately after reaching normal retirement age. Since our calculations show that the tax introduced by the earnings test was small when accounting for actuarial benefit adjustments and differential mortality, our results suggest that although workers form expectations in a way consistent with forward-looking behavior, they misperceive the complicated rules of the earnings test.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp135.pdf
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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp135.

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Length: 45 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:mrr:papers:wp135

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  1. Chan, Sewin & Stevens, Ann Huff, 2004. "Do changes in pension incentives affect retirement? A longitudinal study of subjective retirement expectations," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1307-1333, July.
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  14. Steven Haider & Mel StephensJr., 2006. "How Accurate are Expected Retirement Savings?," Working Papers wp128, University of Michigan, Michigan Retirement Research Center.
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  17. Adeline Delavande & Susann Rohwedder, 2008. "Differential Mortality in Europe and the U.S.: Estimates Based on Subjective Probabilities of Survival," Working Papers 613, RAND Corporation Publications Department.
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Cited by:
  1. Bo MacInnis, 2009. "Social Security and the Joint Trends in Labor Supply and Benefits Receipt Among Older Men," Working Papers, Center for Retirement Research at Boston College wp2009-22, Center for Retirement Research, revised Oct 2009.
  2. Jeffrey B. Liebman & Erzo F. P. Luttmer, 2012. "The Perception of Social Security Incentives for Labor Supply and Retirement: The Median Voter Knows More Than You’d Think," NBER Chapters, in: Tax Policy and the Economy, Volume 26, pages 1-42 National Bureau of Economic Research, Inc.

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