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Individuals’ Responses to Social Security Reform

Author

Listed:
  • Adeline Delavande

    (RAND and Universidade Nova de Lisboa)

  • Susann Rohwedder

    (RAND)

Abstract

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.

Suggested Citation

  • Adeline Delavande & Susann Rohwedder, 2008. "Individuals’ Responses to Social Security Reform," Working Papers wp182, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp182
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    File URL: http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp182.pdf
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    References listed on IDEAS

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    1. Alan L. Gustman & Thomas L. Steinmeier, 2008. "Projecting behavioral responses to the next generation of retirement policies," Research in Labor Economics, in: Solomon W. Polachek & Konstantinos Tatsiramos (ed.),Work, Earnings and Other Aspects of the Employment Relation, volume 28, pages 141-195, Emerald Publishing Ltd.
    2. Emma Aguila, 2011. "Personal Retirement Accounts and Saving," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 1-24, November.
    3. Emma Aguila, 2011. "Personal Retirement Accounts and Saving," American Economic Journal: Economic Policy, American Economic Association, pages 1-24.
    4. Adeline Delavande & Susann Rohwedder, 2008. "Eliciting Subjective Expectations in Internet Surveys," Working Papers WR-589, RAND Corporation.
    5. Adeline Delavande & Susann Rohwedder, 2008. "Eliciting Subjective Expectations in Internet Surveys," Working Papers 589, RAND Corporation.
    6. 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.
    7. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security and Households' Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 1075-1119.
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    Cited by:

    1. Andries De Grip & Maarten Lindeboom & Raymond Montizaan, 2012. "Shattered Dreams: The Effects of Changing the Pension System Late in the Game," Economic Journal, Royal Economic Society, vol. 122(559), pages 1-25, March.

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