Chapter

Social Security Incentives for Retirement

Edited by Courtney Coile and Jonathan Gruber

in Themes in the Economics of Aging

Published by University of Chicago Press

Published in print November 2001 | ISBN: 9780226902845
Published online February 2013 | e-ISBN: 9780226903330 | DOI: http://dx.doi.org/10.7208/chicago/9780226903330.003.0011
Social Security Incentives for Retirement

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This chapter focuses on the incentives for retirement by considering the distribution of Social Security wealth accrual at different ages for participants in the Health and Retirement Survey. Section 10.1 begins with background on the relevant institutional features of the Social Security system and the previous literature in this area. Section 10.2 describes the data and empirical strategy. Section 10.3 presents the basic results for the accrual of Social Security wealth with additional work and the associated tax/subsidy relative to potential earnings, both on average and across the distribution. Section 10.4 highlights the fundamental weakness of simple one-year accrual measures of this type: many Social Security wealth trajectories are nonmonotonic, suggesting that the appropriate measure must look across all years to find the optimal retirement date. It then presents calculations for “peak value,” an incentive measure that provides a middle ground between accrual and the utility-based option value metric of Stock and Wise (1990), by comparing retirement wealth at the current retirement date to retirement wealth at its global maximum. The results are also extended to incorporate private pensions. Section 10.5 discusses the implications of the findings and directions for future research. A commentary is also included at the end of the chapter.

Keywords: retirement; Social Security wealth accrual; Health and Retirement Survey; private pensions

Chapter.  17715 words.  Illustrated.

Subjects: Economics

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