Social Security Changes Promote Delayed Retirements

In a report from the National Bureau of Economic Research’s (NBER) Working Paper Series, authors Alan L. Gustman and Thomas Steinmeier point out that their research found changes in Social Security rules that have been phased in between 1992 and 2004 increase full-time work by men 65 to 67 by a little under 2%, raising their full-time work by about 9%. The changes also increased labor force participation of those 65 to 67 by between 1.4 and 2.2 percentage points, or by 2% to 4%, depending on age.

The researchers noted that when Congress passed Social Security legislation in 1983, one of its goals was to increase the labor force participation of older workers. It raised the normal retirement age and increased the delayed retirement credit, phasing in these changes over decades. In addition, in 2000, the Senior Citizens Freedom to Work Act abolished the Social Security earnings test for those between the full retirement age and age 70.

Consistent with these rule changes, the research report said, the labor force participation of men 65 to 67 stopped declining, then stabilized, and more recently has increased – by about 6% between 1992 and 2004 and by 3% to 4% between 1998 and 2004.

The researchers admitted that changes in market factors and government policies induced by the aging of the baby boomers also have also played a role in the increase; however, to isolate the effects of changes in Social Security rules, Gustman and Steinmeier used a dynamic, stochastic structural retirement model fit to data for married males from the Health and Retirement Study.

Their model provides an estimate of the preferences that influence the retirement decision.

The report includes comparable data for women fifty and over, with the trend to increased labor force participation of women found to be reflected in lower retirement rates, with work effort of older women having increased consistently through all age groups.

The paper can be found at http://www.nber.org .