Study Says Social Security Shifts Influencing Retirement Patterns

December 29, 2008 (PLANSPONSOR.com) - A new study suggests that changes in Social Security rules have influenced retirement and working patterns.

In "How Changes in Social Security Affect Recent Retirement Trends" ( National Bureau of Economic Research (NBER) Working Paper No. 14105 ), co-authors Alan Gustman (of Dartmouth College) and Thomas Steinmeier (of Texas Tech University) find that rule changes increased full-time work by married men aged 65 to 67 by about 9% between 1992 and 2004, encouraged later retirement, promoted the return to full-time work after retiring, and facilitated working part-time after retirement. All in all, according to the report, those changes account for about one-sixth of the increase in labor force participation by 65 to 67 year old married men between 1998 and 2004.

The paper notes that one of the main reasons for enacting the 1983 Social Security reforms in theUnited States was to increase the labor force participation rate of older workers. Additionally, in 2000 Congress further expanded work incentives by abolishing the Social Security earnings test for people over the normal retirement age. As a consequence, the authors assert that in 2004 more men over age 65 were working than in earlier years. In fact, overall, between 1998 and 2004 there was a 3.1 percentage point decline in the fraction of 65-to-67-year-old men who were completely retired, according to the report.

Aging Induced?

Among the changes in government policies that the paper's authors say were "induced by the aging of the baby boomers" were the abolition of mandatory retirement and the adoption of other rules prohibiting age discrimination and encouraging delayed retirement. Moreover, employment and compensation policies of firms were also changed to encourage continued work.

An important change cited was the trend away from defined benefit plans, which often had exerted strong incentives for early retirement, to defined contribution plans, which the authors said were "more neutral when it comes to encouraging retirement at a particular age".

On the other side of the ledger, rising incomes; rapid advances in technology; the rise of international competition; and the decline of unionized, durable goods, and other industries also exert pressures toward earlier retirement. Changing labor market participation decisions of women also may influence their husbands' retirement decisions, according to the report.