The social security early entitlement age in a structural model of retirement and wealth
This paper specifies and estimates a structural life cycle model of retirement and wealth and applies that model both to understand the role of the social security early entitlement age in creating a peak in retirements at age 62, and to simulate the effects of postponing the Social Security early entitlement age from 62 to 64. The model includes a set of budget equations and a utility function. Data are from the first five waves of the Health and Retirement Study and are confined to married men. The budget equations fully incorporate the complex incentives from social security (relying mainly on respondents’ earnings records), wage offers for full and partial retirement work, the incentives created by pensions (measured from employer provided plan descriptions), as well as the influence on retirement and saving of health status, family structure, and constraints from the firm side, such as layoffs and inability to reduce hours on the main job. Parameters of the utility function reflect the influences of time and leisure preference and vary among individuals. Estimation is based on the general method of moments. Our estimates suggest that leisure and time preference are widely distributed among the population, with a bimodal distribution of time preference. Discount rates are either very low or very high. Those with high discount rates find the actuarial adjustments in social security benefits, which use a 3 percent real interest rate, to be inadequate. Once they reach age 62, the benefit accrual profile declines with age. This is the major explanation for the spike in retirement activity at 62. Liquidity constraints from inability to borrow on social security and pension benefits add to this effect. Simulations with the model suggest that raising the social security early entitlement age from age 62 to 64 will shift about three fifths of the bunching of retirements at age 62 to age 64. The bunching amounts to about 8 percent of the population, so raising the social
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alan L. Gustman & Thomas L. Steinmeier, 1983.
"A Structural Retirement Model,"
NBER Working Papers
1237, National Bureau of Economic Research, Inc.
- John Rust & Christopher Phelan, 1997.
"How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets,"
Econometric Society, vol. 65(4), pages 781-832, July.
- Rust, J., 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Working papers 9430, Wisconsin Madison - Social Systems.
- John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
- Eric M. Engen & William G. Gale & Cori R. Uccello, 1999. "The Adequacy of Retirement Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 65-188.
- Eric French, 2005.
"The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour,"
Review of Economic Studies,
Oxford University Press, vol. 72(2), pages 395-427.
- Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
- Eric French, 2000. "The effects of health, wealth, and wages on labor supply and retirement behavior," Working Paper Series WP-00-2, Federal Reserve Bank of Chicago.
- repec:nbr:nberbk:grub99-1 is not listed on IDEAS
- Robin L. Lumsdaine & Olivia S. Mitchell, .
"New Developments in the Economic Analysis of Retirement,"
Pension Research Council Working Papers
98-8, Wharton School Pension Research Council, University of Pennsylvania.
- Lumsdaine, Robin L. & Mitchell, Olivia S., 1999. "New developments in the economic analysis of retirement," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 49, pages 3261-3307 Elsevier.
- Alan L. Gustman & Thomas L. Steinmeier, 2002.
"Social Security, Pensions and Retirement Behavior Within the Family,"
NBER Working Papers
8772, National Bureau of Economic Research, Inc.
- Alan L. Gustman & Thomas L. Steinmeier, 2004. "Social security, pensions and retirement behaviour within the family," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 723-737.
- Alan L. Gustman & Thomas L. Steinmeier, 2001. "Social Security, Pensions and Retirement Behavior Within the Family," Working Papers wp018, University of Michigan, Michigan Retirement Research Center.
- Gustman, Alan L & Steinmeier, Thomas L, 2000. "Retirement in Dual-Career Families: A Structural Model," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 503-45, July.
- Alan L. Gustman & Thomas L. Steinmeier, 2004.
"Personal Accounts and Family Retirement,"
NBER Working Papers
10305, National Bureau of Economic Research, Inc.
- Alan L. Gustman & F. Thomas Juster, 1995. "Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis," NBER Working Papers 4996, National Bureau of Economic Research, Inc.
- Courtney Coile & Peter Diamond & Jonathan Gruber & Alain Jousten, 1999.
"Delays in Claiming Social Security Benefits,"
NBER Working Papers
7318, National Bureau of Economic Research, Inc.
- Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995.
"Precautionary Saving and Social Insurance,"
Journal of Political Economy,
University of Chicago Press, vol. 103(2), pages 360-99, April.
- Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 03-95, Wharton School Rodney L. White Center for Financial Research.
- Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
- R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994. "Precautionary Saving and Social Insurance," NBER Working Papers 4884, National Bureau of Economic Research, Inc.
- Samwick, Andrew A., 1998.
"Discount rate heterogeneity and social security reform,"
Journal of Development Economics,
Elsevier, vol. 57(1), pages 117-146, October.
- Andrew A. Samwick, 1997. "Discount Rate Heterogeneity and Social Security Reform," NBER Working Papers 6219, National Bureau of Economic Research, Inc.
- Alan L. Gustman & Thomas L. Steinmeier, 2001.
"Retirement and Wealth,"
NBER Working Papers
8229, National Bureau of Economic Research, Inc.
- Kahn, James A., 1988. "Social security, liquidity, and early retirement," Journal of Public Economics, Elsevier, vol. 35(1), pages 97-117, February.
- Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
- Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-94, March.
- Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 81-114.
When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:89:y:2005:i:2-3:p:441-463. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.