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The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth


  • Alan L. Gustman
  • Thomas L. Steinmeier


This paper specifies and estimates a structural life cycle model of retirement and wealth that explains the peaks in retirement both at ages 62 and at 65. Our estimates suggest that leisure and time preference are widely distributed among the population, with a bimodal distribution of time preference. Discount rates are either very low or very high. Those with high discount rates find the actuarial adjustments in Social Security benefits, which use a 3 percent real interest rate, to be inadequate. Once they reach age 62, the benefit accrual profile declines with age. This is the major explanation for the spike in retirement activity at 62. Liquidity constraints from inability to borrow on Social Security and pension benefits add to this effect. Simulations with the model suggest that raising the Social Security early entitlement age from age 62 to 64 will shift about three fifths of the bunching of retirements at age 62 to age 64. The bunching amounts to about 8 percent of the population, so raising the Social Security early age of entitlement will cause about 5 percent of the population to delay their retirement, implying a substantial effect on the Social Security system and its finances.

Suggested Citation

  • Alan L. Gustman & Thomas L. Steinmeier, 2002. "The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth," NBER Working Papers 9183, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9183
    Note: AG LS PE

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    References listed on IDEAS

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    2. Alan L. Gustman & Thomas L. Steinmeier, 2004. "Social security, pensions and retirement behaviour within the family," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 723-737.
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    5. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    6. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Retirement and Wealth," NBER Working Papers 8229, National Bureau of Economic Research, Inc.
    7. John F. Henry & L. Randall Wray, 1998. "Economic Time," Macroeconomics 9811004, EconWPA.
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    14. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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