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The Effects of Social Security Reforms on Retirement Ages and RetirementIncomes

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  • Gary S. Fields
  • Olivia S. Mitchell

Abstract

Recent changes legislated in the U.S. Social Security system are changing the economic incentives to work and retire. Some older workers will respond to these new incentives by retiring at different ages. This paper evaluates the signs and magnitudes of these responses. Using a representative sample of male workers, we investigate the pre-reform earnings, private pensions, and Social Security profiles available at alternative retirement ages. Then we examine four specific changes in the structure of Social Security benefits: raising the normal retirement age, delaying the cost-of-living adjustment, lowering early retirement benefits, and increasing late retirement payments. Behavioral parameters are estimated using an ordered logit model of retirement ages; these are than used to evaluate how retirement behavior might respond to each of the four reforms.The largest retirement age response is observed for the policy change which cuts benefits at the earliest ages and offers larger rewards for continued work. This change would delay the average retirement age by about three months. The other reforms generate even smaller responses. Changes in retirement ages of this magnitude will be to small to compensate retirees for reductions in benefit formulas. Thus the Social Security's financial burden will be eased but retiree's incomes will fall on average.

Suggested Citation

  • Gary S. Fields & Olivia S. Mitchell, 1984. "The Effects of Social Security Reforms on Retirement Ages and RetirementIncomes," NBER Working Papers 1348, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1348
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    1. Zabalza, A. & Piachaud, D., 1981. "Social security and the elderly: A simulation of policy changes," Journal of Public Economics, Elsevier, vol. 16(2), pages 145-169, October.
    2. Gustman, Alan L & Steinmeier, Thomas L, 1986. "A Structural Retirement Model," Econometrica, Econometric Society, vol. 54(3), pages 555-584, May.
    3. Gary S. Fields & Olivia S. Mitchell, 1984. "Economic Determinants of the Optimal Retirement Age: An Empirical Investigation," Journal of Human Resources, University of Wisconsin Press, vol. 19(2), pages 245-262.
    4. Mitchell, Olivia S & Fields, Gary S, 1984. "The Economics of Retirement Behavior," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 84-105, January.
    5. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-1240, September.
    6. Small, Kenneth A, 1982. "The Scheduling of Consumer Activities: Work Trips," American Economic Review, American Economic Association, vol. 72(3), pages 467-479, June.
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