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Social Security and the Decision to Retire

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  • Anthony J. Pellechio

Abstract

This study examines empirically whether social security influences the retirement decisions of individuals. The framework for this study is the life-cycle model of individual behavior. The life-cycle model shows that there are two main ways in which social security can affect behavior. One way is through the change in an individual's lifetime income that social security can bring about. The other way has to do with how the system changes compensation for work. Social security's income and substitution effects are included in a model for examining retirement decisions. This model is based on the model of labor force participation that has become standard in the literature on labor supply. The data used in this study come from the Social Security Administration and are particularly well suited for this study. Retirement models are estimated separately for samples of 62-64 and 65-70 year old men. The empirical results support the conclusion that social security influences the decision to retire. The magnitude of behavioral responses to changes in social security benefits are reported and implications for future behavior are discussed.

Suggested Citation

  • Anthony J. Pellechio, 1981. "Social Security and the Decision to Retire," NBER Working Papers 0734, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0734
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    1. repec:eee:labchp:v:1:y:1986:i:c:p:305-355 is not listed on IDEAS
    2. Olivia S. Mitchell & Gary S. Fields, 1981. "The Effects of Pensions and Earnings on Retirement: A Review Essay," NBER Working Papers 0772, National Bureau of Economic Research, Inc.
    3. Krueger, Alan B & Pischke, Jorn-Steffen, 1992. "The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 412-437, October.
    4. Hamermesh, Daniel S, 1984. "Life-Cycle Effects on Consumption and Retirement," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 353-370, July.
    5. Alan L. Gustman & Thomas L. Steinmeier, 1983. "MINIMUM‐HOURS CONSTRAlNTS AND RETlREMENT BEHAVlOR," Contemporary Economic Policy, Western Economic Association International, vol. 1(3), pages 77-91, April.
    6. Krueger, Alan B. & Meyer, Bruce D., 2002. "Labor supply effects of social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 33, pages 2327-2392, Elsevier.
    7. Alan L. Gustman & Thomas L. Steinmeier, 1982. "Minimum Hours Constraints and Retirement Behavior," NBER Working Papers 0940, National Bureau of Economic Research, Inc.
    8. Gary Burtless & Robert A. Moffitt, 1986. "Social Security, Earnings Tests, and Age at Retirement," Public Finance Review, , vol. 14(1), pages 3-27, January.

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