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Individuals’ Responses to Social Security Reform

  • Adeline Delavande

    (RAND and Universidade Nova de Lisboa)

  • Susann Rohwedder


The Social Security trust fund is predicted to be depleted by 2041. While there are several viable reform proposals to restore long-term solvency of the Social Security system, one important element that is critical to the success of any reform remains unknown: how will individuals respond to, for example, a cut of their Social Security benefits. Will they work longer or save more or both, and to what extent will their response make up for the cut in benefits? In this paper we use data from the HRS Internet Survey where we asked respondents directly what they would do if everyone’s Social Security benefits were cut by 30 percent. At a qualitative level, we find important differences in the response by sex, marital status, and SES, among others. We conduct a detailed quantitative analysis of response to timing of Social security claiming and find that on average individuals would postpone claiming Social Security by 1.13 years. If this time was spent working by everyone then the annual Social Security benefit would drop on average by 20 percent rather than the initial 30 percent imposed by the reform. In other words the response to claim later and work longer would make up for one third of the initial cut in Social Security benefits.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp182.

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Length: 32 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:mrr:papers:wp182
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References listed on IDEAS
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  1. Orazio Attanasio & Susanne Rohwedder, 2001. "Pension wealth and household saving: evidence from pension reforms in the UK," IFS Working Papers W01/21, Institute for Fiscal Studies.
  2. Emma Aguila, 2008. "Personal Retirement Accounts and Saving," Working Papers 600, RAND Corporation Publications Department.
  3. Alan L. Gustman & Thomas Steinmeier, 2007. "Projecting Behavioral Responses to the Next Generation of Retirement Policies," NBER Working Papers 12958, National Bureau of Economic Research, Inc.
  4. repec:tpr:qjecon:v:118:y:2003:i:3:p:1075-1119 is not listed on IDEAS
  5. Adeline Delavande & Susann Rohwedder, 2008. "Eliciting Subjective Expectations in Internet Surveys," Working Papers 589, RAND Corporation Publications Department.
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