Selected Research & Analysis: Old-Age and Survivors Insurance (OASI) Claiming Behavior
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Can Informational Interventions Be Effective Policy Tools? An Initial Assessment of the Social Security Statement
To inform workers about potential future Social Security benefits, the Social Security Administration employs an informational intervention: mailing Social Security Statements. In this article, the author uses linear probability models and agency administrative data to analyze a behavioral effect of Statement receipt; specifically, its effect on the age at which workers claim their retirement benefits. Results for individuals who received one Statement mailing by age 62 are compared with those for individuals who received multiple mailings, and with those who received none, during the 1975–2007 study period. Workers who received multiple Statements were found to be significantly more likely to claim retirement benefits at later ages than were other workers, and Statement receipt was positively associated with employment at ages 62–70. The author also compares the relative effects of an educational outreach (in the form of Statement mailings) and a direct policy change (involving the full retirement age) on claiming behavior and finds that the magnitudes of the two effects are similar.
Working and Claiming Behavior at Social Security's Early Eligibility Age Among Men by Lifetime Earnings Decile
Using a merged internal research file of administrative data from the Social Security Administration, the author examines men's working and retired-worker benefit claiming behavior at and around Social Security's early eligibility age of 62, and disaggregates the results by lifetime earnings decile. She also examines how mortality risk varies among men exhibiting different working and claiming behaviors, before and after controlling for the lifetime earnings decile to which they belong. This paper follows up ORES Working Paper No. 114, which details the study methodology and presents summary findings on men's and women's working and claiming behavior. Both papers find substantial heterogeneity in working and claiming behavior at age 62; in this paper, while differences in men's working and claiming behavior were sometimes observed between lifetime earnings deciles, that heterogeneity in behavior was also observed within each lifetime earnings decile.
For this working paper, the author uses a merged internal research file of administrative data from the Social Security Administration to examine working and retired-worker benefit claiming behavior at and around Social Security's early eligibility age of 62, by sex. The author defines various combinations of working and benefit-claiming behavior at or near age 62, for which she presents statistics indicating trends in behavior patterns for men and women born in the years from 1937 through 1944. This paper is an introductory companion to the forthcoming ORES Working Paper No. 115, which focuses on men's working and claiming behavior and disaggregates the results by lifetime earnings decile.
Using a lifecycle model, the authors examine the implications of persistent low real interest rates and low wage growth for individuals nearing retirement. Low returns and low wage growth are found to affect welfare substantially, often producing large compensating variations. Low economywide wage growth has a much larger welfare effect than low individual wage growth, largely because the Social Security benefit formula is progressive and incorporates wage indexing. Low economywide wage growth undercuts the effects of wage indexation as average wages fall along with individual wages. Low returns raise the optimal Social Security claiming age and the marginal benefit of working longer, while low wage growth decreases the marginal benefit of working longer. Low returns also increase the relative price of consumption during retirement, suggesting that individuals may wish to reduce future consumption relative to current consumption. The authors then compare these findings with standard financial planning advice.
The Benefit Receipt Patterns and Labor Market Experiences of Older Workers Who Were Denied Social Security Disability Insurance Benefits on the Basis of Work Capacity
In this article, the authors use linked survey and administrative data to identify Social Security Disability Insurance applicants who received a denial at steps 4 and 5 of the Social Security Administration's sequential evaluation process for disability determination. The authors document the denied applicants' demographic characteristics and the characteristics of the occupations they held before application and track their postdenial benefit receipt, employment, and earnings patterns.
A retired worker's Social Security benefit depends in part on the age at which he or she claims benefits. Working longer and claiming benefits later increase the monthly benefit. Information about trends in employment at older ages and the age at which individuals claim Social Security benefits can help policymakers assess the effectiveness of current policies in influencing the timing of retirement and benefit claims. Both the labor force participation rate (LFPR) among older Americans and the age at which they claim Social Security retirement benefits have risen in recent years. For example, from 2000 through 2018, the LFPR among individuals aged 65–69 rose from 30 percent to 38 percent for men and from 19 percent to 29 percent for women. Since 2000, the proportion of fully insured men and women who claim retirement benefits at the earliest eligibility age of 62 has declined substantially.
The rules for claiming Social Security retired-worker benefits are complex in large part because they offer a potential claimant flexibility in choosing a claiming age most to his or her advantage. The complexity of those rules is multiplied for a married couple, as the potential eligibility for spousal benefits, the couple's age difference, and other factors must also be considered. The number of claiming-age combinations available to a married couple varies widely for couples with different circumstances. This note explores the claiming rules, contingent situations, claiming-age combinations, and benefit amounts available to married couples across a range of respective birth years and benefit levels based on respective earnings histories.
When to claim Social Security retirement benefits is one of the most important financial decisions many people make. The Social Security Administration (SSA) provides a variety of online tools and publications to help individuals decide on their own when to claim benefits but maintains a neutral stance on when a person should claim. Because SSA remains neutral, other government, nonprofit, academic, and for-profit entities have developed tools to assist the public with their claiming decision. This note analyzes the advantages and limitations of six online benefit calculators. Users of these online tools should consider the source of their information and understand that the benefit estimates they produce are based on different underlying assumptions, which can result in different estimated benefit amounts.
Eligible workers can claim Social Security retirement benefits at age 62, the earliest eligibility age; however, those who claim benefits before attaining full retirement age receive permanently reduced benefits. Working longer and claiming benefits later can result in higher Social Security benefits and greater financial security in retirement. This article presents data on trends in the labor force participation rate of older Americans and the age at which people claim Social Security retired-worker benefits.
Choosing the claiming age that maximizes the expected present value of lifetime Social Security retirement benefits requires a survival function to account for an individual's prospective longevity along with the specification of a rate by which to discount the future benefit payments for each claiming age. This article evaluates optimal claiming ages for prospective beneficiaries across a range of 81 real discount rate options (specified in increments of one-tenth of 1 percent) from 0 percent to 8 percent, considering the survival functions for men and women born in 1952. It examines the implications of choosing a given rate as well as the sensitivity of the optimal claiming age to a specific rate choice.
The Longevity Visualizer: An Analytic Tool for Exploring the Cohort Mortality Data Produced by the Office of the Chief Actuary
This note introduces the Longevity Visualizer (LV), a visual-analysis tool that enables users to explore various applications of cohort life-table data compiled and calculated by the Social Security Administration's Office of the Chief Actuary. The LV presents the life-table data in two series—survival functions and age-at-death probability distributions—each of which is generated for each potential age and each sex across a long range of historical and projected birth cohorts. The LV is designed to make complex longevity projections accessible to analysts and researchers, as well as to individuals making financial and retirement plans.
A Multidisciplinary Review of Research on the Distributional Effects of Raising Social Security's Early Entitlement Age
When estimating potential adversity caused by an increase in the early entitlement age (EEA), findings from both the EEA literature and the broader public health literature do not suggest that the Social Security–covered worker population can be easily separated into two groups—an unaffected or low-risk group and an easily identifiable vulnerable or high-risk group. This evidence appears largely supportive of the conclusions reached by the retired-worker benefit's original designers and may suggest implementation difficulties for proposals that seek to raise the EEA, while protecting groups deemed by the proposers to be adversely affected by that increase. Because the risks insured against by the retired-worker benefit are not limited to an easily identifiable segment of the population, the universality of Old-Age Insurance under current law may better match the underlying exposure to risk in the insured population than a targeted or needs-based alternative.
Incentivizing Delayed Claiming of Social Security Retirement Benefits Before Reaching the Full Retirement Age
Claiming Social Security retirement benefits before the full retirement age (FRA) results in permanently lower benefits, while delaying claiming permanently increases benefits. This article uses Modeling Income in the Near Term data to determine the socioeconomic characteristics of individuals who claim at various ages. The authors then describe a number of novel approaches aimed at encouraging individuals to delay claiming in the months and years before reaching their FRA. Lastly, the authors model one of those approaches to examine how a 1-year delay in claiming affects benefits and poverty in the future.
The retirement earnings test (RET) is an often-misunderstood aspect of the Social Security program. Policymakers have proposed reforming the RET as a way to encourage working at older ages. However, this could also cause earlier benefit claiming. We use Modeling Income in the Near Term data to analyze the complete repeal of the earnings test for beneficiaries aged 60 or older, first assuming no behavioral responses to repeal and secondly assuming changes to benefit claiming and workforce participation behaviors. Our lifetime results show that the assumed behavioral response—particularly the benefit claiming change—has a bigger effect than the RET policy change itself.
Mind the Gap: The Distributional Effects of Raising the Early Eligibility Age and Full Retirement Age
Policymakers have proposed increases to the early eligibility age (EEA) and/or full retirement age (FRA) to address increasing life expectancy and Social Security solvency issues. This analysis uses the Social Security Administration's Modeling Income in the Near Term (MINT) model to compare three retirement-age increases suggested by the Social Security Advisory Board: (1) increase the FRA alone, (2) increase both the EEA and FRA to maintain a 4-year gap between them, and (3) increase both the EEA and FRA to maintain a 5-year gap between them. This distributional analysis shows the impact these varying reforms would have on Social Security beneficiaries in the future.
How Did the Recession of 2007–2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study?
This article uses household wealth and labor market data from the Health and Retirement Study (HRS) to investigate how the recent "Great Recession" has affected the wealth and retirement of the Early Boomer cohort, those in the population who were just approaching retirement age at the beginning of the recession. The retirement wealth of people aged 53–58 before the onset of the recession in 2006 declined by a relatively modest 2.8 percent by 2010. For members of older cohorts, wealth had increased by about 5 percent over a comparable age span. The wealth holdings of poorer households were least affected by the recession. Relative losses were greatest for those who initially had the highest wealth when the recession began. The retirement behavior of the Early Boomer cohort looks similar, at least to date, to the behavior observed for members of older cohorts at comparable ages.
The majority of research dealing with the retirement decision has focused on the health and wealth aspects of retirement. Research in the areas of judgment and decision making and behavioral economics suggests that there may be a number of behavioral factors that influence the retirement decision as well. This review highlights such factors and offers a unique perspective on potential determinants of retirement behavior, including anchoring and framing effects, affective forecasting, hyperbolic discounting, and the planning fallacy. The author describes findings from previous research, as well as draws novel connections between existing decision-making research and the retirement decision.
This policy brief compares two options set forth by the Social Security Advisory Board to increase the full retirement age (FRA), the age at which claimants may receive unreduced Social Security old-age benefits. One option would raise the FRA from the current target of 67 years to 68 years; the other would raise the FRA to 70 years. The brief examines the effects of both options on the level of benefits of Social Security beneficiaries aged 62 or older in 2070 using Modeling Income in the Near Term (MINT) projections, and on Trust Fund solvency using estimates from the Social Security Administration's Office of the Chief Actuary. The brief finds that both options would reduce benefits, improve solvency, and slightly increase the poverty rate. Within each option, effects on benefits are relatively uniform across beneficiary characteristics, although some surviving spouse and disabled beneficiaries would be shielded from benefit reductions.
An Empirical Study of the Effects of Social Security Reforms on Benefit Claiming Behavior and Receipt Using Public-Use Administrative Microdata
In the past few years, the Social Security Old-Age and Survivors Insurance benefit system in the United States has undergone some of the most significant changes since its inception. Using the public-use microdata extract from the Master Beneficiary Record, we are able to uncover a number of interesting trends in benefit claiming behavior and level of benefit receipt, which can help us understand how the changes in the system are shaping the retirement benefit claiming behavior of older Americans.
Using a 1 percent sample of Social Security Administration data, this article documents and analyzes responses in the entitlement age for old-age benefits following the recent changes in Social Security rules. Both rules, the removal of the retirement earnings test (RET) for persons who are at the full retirement age (FRA) through age 69 in 2000 or later and a gradual increase in the FRA for those who reach age 62 in 2000 or later, are expected to affect the age at which people claim Social Security retirement benefits (or entitlement age) and the work behavior of older Americans.
New Evidence on Earnings and Benefit Claims Following Changes in the Retirement Earnings Test in 2000
In April 2000, Congress enacted the Senior Citizens Freedom to Work Act of 2000, which removed the retirement earnings test for individuals at the full retirement age and older. This paper examines the labor force activity of workers aged 65–69 relative to older and younger workers in response to the removal of the earnings test. We use the 1 percent sample of Social Security administrative data that covers the period from 4 years before to 4 years following the removal of the test. Quantile regression methods allow us to identify the earnings levels of workers who change their work effort.
This article analyzes the relationship between retirement and wealth. Using data from the first four waves of the longitudinal Health and Retirement Study—a cohort of individuals born from 1931 to 1941—we estimate reduced-form retirement and wealth equations. Our results show that those who retire earlier do not necessarily save more and that even if one's primary interest is in the relationship between Social Security policy and the decision to retire, it is important to incorporate saving behavior and other key decisions into the analysis.
This paper reviews the economic literature on the work and retirement decisions of older women. Economic studies generally find that married women respond to the financial reward for work (for example, wages) in making their work and retirement decisions, but that they do not respond to unearned income and wealth (for example, the value of lifetime Social Security benefits). Unmarried women are found to respond to all type of financial variables. Most economic studies find that the family plays only a limited role in the work and retirement decisions of women. The retirement status of the husband does influence the wife's retirement decision, but the health status of the husband does not. The presence of dependents in the household, regardless of whether they are children or parents, is not found to influence work and retirement among women. The relevance of these results to Social Security policy is discussed.
There are a number of reasons to be cautious about the results. The literature to date is small; it is based on data that are deficient in some respects, and it contains studies that have methodological problems. These problems are discussed and prospects for future research are explored.
Many observers have noted that the long-term decline in labor force participation by older Americans may reflect the evolution of social institutions that effectively discourage work. Often-cited factors include employer discrimination against older workers, private pension plans that penalize continued employment, and the Social Security system. Various policies, such as eliminating Social Security's retirement test, have been proposed with a view to eliminating or lessening employment barriers.
This paper summarizes the economic evidence that addresses the role played by the Old-Age and Survivors Insurance (OASI) programs in retirement decisions. OASI is shown to have statistically significant effects on both the timing of retirement and the amount of post-retirement work; however, the influence is not large relative to the many other factors that determine the labor-supply decisions of older workers. Consequently, changes in Social Security policy of the type and magnitude that are politically feasible are unlikely to result in large changes in retirement behavior.