IDEAS home Printed from https://ideas.repec.org/p/mrr/papers/wp135.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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 For example, men whose marginal wage rate increased when the earnings test was repealed, showed the largest increase in the probability to work full-time past normal retirement age.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.

Suggested Citation

  • Pierre-Carl Michaud & Arthur vanSoest, 2006. "How Did the Elimination of the Earnings Test Above the Normal Retirement Age Affect Retirement Expectations?," Working Papers wp135, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp135
    as

    Download full text from publisher

    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp135.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Giovanni Mastrobuoni, 2006. "The Social Security Earnings Test Removal: Money Saved or Money Spent by the Trust Fund?," Working Papers 69, Princeton University, Department of Economics, Center for Economic Policy Studies..
    2. 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.
    3. 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 136-152, March.
    4. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    5. 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.
    6. Honore, Bo E, 1992. "Trimmed LAD and Least Squares Estimation of Truncated and Censored Regression Models with Fixed Effects," Econometrica, Econometric Society, vol. 60(3), pages 533-565, May.
    7. 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.
    8. Richard Disney & Tanner, Tanner, 1999. "What can we learn from retirement expectations data?," IFS Working Papers W99/17, Institute for Fiscal Studies.
    9. David S. Loughran & Steven Haider, 2007. "Do the Elderly Respond to Taxes on Earnings? Evidence from the Social Security Retirement Earnings Test," Working Papers 223-1, RAND Corporation.
    10. Bo Honoré & Søren Leth-Petersen, 2006. "Estimation of Panel Data Models with Two-sided Censoring," CAM Working Papers 2006-14, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    11. B. Douglas Bernheim, 1989. "The Timing of Retirement: A Comparison of Expectations and Realizations," NBER Chapters,in: The Economics of Aging, pages 335-358 National Bureau of Economic Research, Inc.
    12. Hugo Benitez-Silva & Frank Heiland, 2006. "The Social Security Earnings Test Revisited: Information, Distortions, and Costs," Department of Economics Working Papers 06-04, Stony Brook University, Department of Economics.
    13. Michael D. Hurd & Kathleen McGarry, 1995. "Evaluation of the Subjective Probabilities of Survival in the Health and Retirement Study," Journal of Human Resources, University of Wisconsin Press, vol. 30, pages s268-s292.
    14. Gruber, Jonathan & Orszag, Peter, 2003. "Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(4), pages 755-773, December.
    15. Steven Haider & Mel StephensJr., 2006. "How Accurate are Expected Retirement Savings?," Working Papers wp128, University of Michigan, Michigan Retirement Research Center.
    16. Li Gan & Michael D. Hurd & Daniel L. McFadden, 2005. "Individual Subjective Survival Curves," NBER Chapters,in: Analyses in the Economics of Aging, pages 377-412 National Bureau of Economic Research, Inc.
    17. Hugo Bentez-Silva & Debra S. Dwyer, 2005. "The Rationality of Retirement Expectations and the Role of New Information," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 587-592, August.
    18. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc.
    19. Alan L. Gustman & Thomas L. Steimeier, 2004. "The Social Security Retirement Earning Test,Retirement and Benefit Claiming," Working Papers wp090, University of Michigan, Michigan Retirement Research Center.
    20. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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," Tax Policy and the Economy, University of Chicago Press, vol. 26(1), pages 1-42.
    2. 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.

    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mrr:papers:wp135. 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: (MRRC Administrator). General contact details of provider: http://edirc.repec.org/data/isumius.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.