Retirement Effects of Proposals by the President’s Commission to Strengthen Social Security
This paper simulates the retirement effects of the various elements of proposals made by the President’s Commission to Strengthen Social Security (CSSS). Simulations are based on a structural dynamic model of retirement and savings estimated with data from the first five waves of the Health and Retirement Study. This model posits lifetime expected utility is constrained by an asset accumulation equation and an uncertain lifetime. Retirement preferences and time preferences are both allowed to be heterogeneous among workers, allowing the model to capture the peaks in retirement at both ages 62 and 65. Simulating over the next 75 years, the model suggests that the trend to earlier retirement, which has only recently been interrupted, should continue. The effect of Commission proposals is to provide individuals with incentives to delay their retirement substantially. The overall effect of these proposals could be enough to offset, or more than offset the trend to earlier retirement. The largest effects on retirement in the Commission proposals comes from a provision in Model 2 which would keep benefits roughly constant in real terms. Compared to current law, which allows benefits to grow with wages, in 2075 years this provision would increase the fraction of those 62 years old at full-time work from 39 percent to 46 percent of the cohort. Indexing benefits to life expectancy, as in Plan 3, would lower the effect to 4 percentage points, about the same effect as allowing the system to continue, and after the trust fund is exhausted, paying benefits proportional to revenue. By 2075 a proposal in the Commission’s Model 3 to reduce benefits of early retirees, but raise the actuarial adjustment for those who postpone retirement past the normal retirement age, would create a 3.4 percentage point increase in full-time work for those 65 years old, increasing the number of 65 year olds working full-time by fifteen percent. Other elements of the proposals, including increasing benefits for low wage workers and reducing benefits for high wage workers, would produce only very modest changes in retirement behavior, even within affected groups.
|Date of creation:||Mar 2003|
|Contact details of provider:|| Postal: P.O. Box 1248, Ann Arbor, MI 48104|
Phone: (734) 615-0422
Fax: (734) 647-4575
Web page: http://www.mrrc.isr.umich.edu/publications/papers/
More information through EDIRC
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.:
- 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, 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.
- Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
- Roger H. Gordon & Alan S. Blinder, 1980. "Market wages, reservation wages, and retirement decisions," NBER Chapters,in: Econometric Studies in Public Finance, pages 277-308 National Bureau of Economic Research, Inc.
- Gordon, Roger H. & Blinder, Alan S., 1980. "Market wages, reservation wages, and retirement decisions," Journal of Public Economics, Elsevier, vol. 14(2), pages 277-308, October.
- Roger H. Gordon & Alan S. Blinder, 1980. "Market Wages, Reservation Wages, and Retirement Decisions," NBER Working Papers 0513, National Bureau of Economic Research, Inc.
- Gustman, Alan L. & Steinmeier, Thomas L., 2005. "The social security early entitlement age in a structural model of retirement and wealth," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 441-463, February.
- Alan L. Gustman & Thomas L. Steinmeier, 2002. "The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth," NBER Working Papers 9183, National Bureau of Economic Research, Inc.
- Alan L. Gustman & Thomas L. Steinmeier, 2002. "The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth," Working Papers wp029, University of Michigan, Michigan Retirement Research Center.
- 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.
- Robin L. Lumsdaine & Olivia S. Mitchell, "undated". "New Developments in the Economic Analysis of Retirement," Pension Research Council Working Papers 98-8, Wharton School Pension Research Council, University of Pennsylvania.
- Gustman, Alan L & Steinmeier, Thomas L, 1985. "The 1983 Social Security Reforms and Labor Supply Adjustments of Older Individuals in the Long Run," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 237-253, April.
- Alan L. Gustman & Thomas L. Steinmeier, 2002. "The New Social Security Commission Personal Accounts: Where Is the Investment Principal?," NBER Working Papers 9045, National Bureau of Economic Research, Inc.
- Alan L. Gustman & Thomas L. Steinmeier, 2002. "The New Social Security Commission Personal Accounts: Where is the Investment Principal?," Working Papers wp031, University of Michigan, Michigan Retirement Research Center.
- Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)