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The Social Security Retirement Earning Test,Retirement and Benefit Claiming

  • Alan L. Gustman

    (Dartmouth College and NBER)

  • Thomas L. Steimeier

    (Texas Tech University)

This paper introduces the age at which Social Security benefits are claimed as an additional outcome in a structural model of retirement and wealth. The model is then used to simulate the effects of abolishing the remainder of the Social Security earnings test, between age 62 and the full retirement age. Estimates are based on data for married men from the first six waves of the Health and Retirement Study. From age 62 through full retirement age, the earnings test reduces the share working full time by about four percent of the married male population, which entails a reduction of about ten percent in the number of married males of that age at full time work. However, abolishing the earnings test would adversely affect the cash-flow of the system. If the earnings test were abolished between early and full retirement age, the share of married men claiming Social Security benefits would increase by about 10 percentage points, and average benefit payments would increase by about $1,800 per recipient, to be offset eventually by actuarially fair or better than fair reductions in benefit payouts throughout their 70s, 80s and 90s. One can increase the employment of older persons either by abolishing the earnings test or by increasing the early entitlement age under Social Security. A major difference on the funding side is that abolishing the earning test results in an earlier flow of benefit payments from Social Security, worsening the cash-flow problems of the system, while increasing the early entitlement age delays the flow of benefit payments from the system, improving its liquidity.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp090.

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Length: 36 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:mrr:papers:wp090
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  1. 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.
  2. Richard Disney & Sarah Smith, 2002. "The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom," Economic Journal, Royal Economic Society, vol. 112(478), pages C136-C152, March.
  3. Martin Feldstein & Andrew Samwick, 1992. "Social Security Rules and Marginal Tax Rates," NBER Working Papers 3962, National Bureau of Economic Research, Inc.
  4. Alan L. Gustman & Thomas L. Steinmeier, 2003. "Retirement Effects of Proposals by the President's Commision to Strengthen Social Security," NBER Working Papers 10030, National Bureau of Economic Research, Inc.
  5. Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February.
  6. 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.
  7. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
  8. Burtless, Gary & Moffitt, Robert A, 1985. "The Joint Choice of Retirement Age and Postretirement Hours of Work," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 209-36, April.
  9. Jonathan Gruber & Peter Orszag, 1999. "What To Do About The Social Security Earnings Test?," Issues in Brief ib-1, Center for Retirement Research.
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