Change to Social Security Impacts Decisions

In 1983, Congress introduced gradual increases in the eligibility age for full Social Security benefits from 65 to 67. The increases, starting in 2000 and continuing today, have meant larger reductions in the monthly checks for people who sign up for their benefits early.

This was a major cut to Social Security benefits, and it has had an impact. Retirement rates have declined among workers in their early 60s as they delayed retirement to make up for the larger penalties for claiming their benefits early, a new study found.

Estimating the effect of this change on retirements is challenging, so the researchers compared actual retirement rates after the reform with their estimates of what the rates would’ve been if Congress had not increased the full retirement age. They also calculated the retirement rates a few different ways. Their main estimate, based on three decades of U.S. Census data, was notable, because it showed a substantial decline in retirements at age 62, which is the first time workers can collect Social Security – and the age that exacts the biggest penalty in the form of a smaller monthly check.

At ages 63 to 65, the penalties for claiming early shrink – and the effect of the reform was less noticeable.

But the main estimate of retirement rates – the incidence rate – showed that the 1983 increase in retirement penalties had a significant impact on 62-year-olds. The incidence rate is the number of people in a given year who retire at 62 as a percentage of everyone in their birth cohort.

The results showed that 10 percent of the men – all workers born after 1937 – left the labor force when they were 62. That’s about 5 percentage points less than the rate would’ve been without the reform.

For women, the incidence rate at 62 was 8.4 percent, which is about 2 points less than if there had been no reform. Their response may have been more muted because women retire for different reasons than men.

Historically, men have had a stronger lifelong attachment to the labor force than women and choose when they’re going to retire. Women, on the other hand, have tended to retire when their husbands do – and not necessarily just because they’ve reached Social Security’s eligibility age.

Despite the large penalties for the early claimers, 62 remains one of the most popular ages for starting Social Security. But this study shows that cutting benefits by increasing the full retirement age did move the needle, encouraging more people to work longer and boost the amount in their monthly Social Security checks.

To read this study, authored by Damir Cosic and C. Eugene Steuerle, see “The Effect of Early Claiming Benefit Reduction on Retirement Rates.”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.