Have People Delayed Claiming Retirement Benefits? Responses to Changes in Social Security Rules
Song, Jae, Manchester, Joyce, Social Security Bulletin
This article examines changes in the age at which people claim Social Security retirement benefits in response to two recent changes in the Social Security rules: the removal of the retirement earnings test at ages 65 to 69 in 2000 and the gradual increase in the full retirement age (FRA) for those born in 1938 or later. Data come from the 1 percent sample of Social Security administrative data for 1997-2005. Descriptive and regression analyses show that the largest effect of the change in the earnings test rule in 2000 occurs at age 65. At that age, the proportion of people who claim retirement benefits increases by about 4 percentage points among men and 2 percentage points among women. The response to the gradual increase in the FRA occurs not only among those who are close to the FRA but also among those who are close to the early retirement age.
Recently, two major changes in Social Security rules became effective: the removal of the retirement earnings test 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. The FRA is the age at which 100 percent of retirement benefits is payable. Each rule change is expected to affect the entitlement age at which people claim Social Security retirement benefits and the work behavior of older Americans.
The effectiveness of the changes largely depends on how people adjust their age at entitlement. Eliminating the retirement earnings test is meant to encourage older people to work so that their earnings can supplement their Social Security benefits, but how the change affects the age at which older people claim Social Security benefits is less clear. One of the unwanted consequences of the change in the earnings test in 2000 is that claiming benefits at the FRA has become more attractive for those who previously claimed benefits later than the FRA. Accelerated benefit claims at the FRA with continued post-FRA employment reduce benefit amounts by forfeiting the expected long-term increase that otherwise accrues under the program's delayed retirement credit. At the same time, some analysts argue that eliminating the earnings test for those who have reached the FRA through age 69 could affect the benefit claiming ages of those who are younger than the FRA as well.1 If that is true, one of the desired consequences is that those who have not attained the FRA are more likely to continue to work and not claim benefits until they reach the FRA.
Effects of raising the FRA would seem to be more straightforward at first glance. The aim of increasing the FRA is to improve the solvency of the Social Security system by providing stronger disincentives for claiming benefits early. What is not clear is how people actually respond to those disincentives. To understand the effect of the rule changes on Social Security finances and individuals' retirement wealth, we need to examine how people adjust the age at which they claim benefits in response to the rule changes.
Using a 1 percent sample of Social Security administrative data, this article documents and analyzes responses in the entitlement age for old-age benefits following the recent changes in Social Security rules.2 Because the administrative data allow us to determine the exact age at entitlement for all Social Security beneficiaries, we can accurately document responses in benefit entitlement age before and after the rule changes. By doing so, we expect to learn whether people have responded to changes in Social Security rules by modifying the age at which they claim benefits, how responsive they have been, and whether the response is concentrated only around the FRA. One of the most interesting questions surrounding the gradual increase in the FRA is whether it can affect the behavior of those claiming benefits close to the early retirement age. Results here will help shed light on responses by future workers as the FRA continues to rise to age 67 and, more generally, on responses to changes in retirement incentives. …