Academic journal article Journal of Economics and Economic Education Research

The Impact of Age Differences and Race on the Social Security Early Retirement Decision for Married Same Sex Couples

Academic journal article Journal of Economics and Economic Education Research

The Impact of Age Differences and Race on the Social Security Early Retirement Decision for Married Same Sex Couples

Article excerpt

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

The Defense of Marriage Act (DOMA) of 1996 defined "marriage" as a legal union between one man and one woman (1 U.S. Code §7). As a consequence, it effectively barred same-sex married couples from receiving federal marriage benefits such as social security. In June 2013 the Supreme Court overturned the section of the DOMA denying federal benefits to legally married same-sex couples (U.S. vs Windsor, June 26, 2013). Furthermore, on June 26, 2015 the U.S. Supreme Court ruled that the U.C. Constitution guarantees a right to same-sex marriage and all of the benefits entitled under such union. The purpose of this study is to examine the impact of race and age differences on the social security early and delayed retirement decision for same-sex married couples.

Early retirement is attractive for many reasons: social security benefits (SSB) and rules can change, health concerns, and increased demand for leisure, to name a few. However, SSB are permanently reduced by an actuarial reduction factor (5/9ths of 1% for the first 36 months and 5/12ths of 1% per month thereafter) for early retirement. Delayed retirement is attractive because SSB are increased by a delayed retirement credit (DRC) of 8% for each year of delay after FRA up to age 70.

In this study we analyze the eighteen same-sex married couple combinations for the following races: Whites (W), Hispanics (H) and Blacks (B). The nine spouse_1/spouse_2 combinations for males (M) are: WM_WM, BM_BM, HM_HM, WM_BM, BM_WM, WM_HM, HM_WM, BM_HM and HM_BM and for females (F) are: WF_WF, BF_BF, HF_HF, WF_BF, BF_WF, WF_HF, HF_WF, BF_HF and HF_BF. We develop an Excel model to compute the breakeven IRR (BE IRR) for each of the race-gender combinations. Following Blanchett (2013), three claiming scenarios are considered: receiving benefits early (e.g., at age 62 versus 66), the maximum realistic delay period (e.g., at age 62 versus 70), and delaying benefits past full retirement age (e.g., age 66 versus 70). Within these 3 claiming scenarios we examine couples by race combination who retire at the same age and with age differences of 0, 4, 7 and 10 years. We also look at a specific scenario where the spouses retire at different ages and the impact of age differences on their retirement decision.

LITERATURE REVIEW

There have been an extensive number of studies on the early versus delayed social security retirement decision for heterosexual married couples but none on same-sex married couples. For a review of prior literature, see Docking, Fortin and Michelson (2012, 2013, 2015).

Docking, Fortin and Michelson compute the BE IRRs between different retirement ages. These BE IRRs can be viewed as "hurdle rates." That is, if a couple could invest their SSBs at a rate greater than (less than) the computed BE IRR over the given time horizon, the couple should retire at the earlier (later) age. Docking, Fortin and Michelson (2013) found that for heterosexual couples who are the same age and retire at same age that the highest BE IRRs consistently had a Hispanic working spouse and the lowest BE IRRs consistently had a white working spouse.

Docking, Fortin and Michelson (2015) found that for heterosexual couples who are different ages, but retire at same age that the highest BE IRRs consistently had a Hispanic working spouse and the lowest BE IRRs consistently had a white working spouse. For heterosexual couples who are different ages and retire at different ages, the highest BE IRRs consistently had a Hispanic working spouse and a Hispanic non-working spouse and the lowest BE IRRs consistently had a white working spouse and a black non-working spouse. Also, as the age difference increased, the BE IRRs decreased.

Irrespective of who is the breadwinner, Hispanics have higher hurdle rates; while Whites have lower hurdle rates. For a given retirement age comparison/age difference the results can be interpreted as follows: the high (low) breakeven group would prefer to retire later (earlier) since the hurdle rate is more difficult (less difficult) to overcome. …

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