Who Retires Early?
Proposals to ‘increase the retirement age’ under Social Security now appear frequently as part of plans to close the program’s projected long-term deficit. These proposals usually call for an increase in the age at which unreduced benefits are paid. That age, now 66, is scheduled to increase to 67 for everyone turning 62 in 2022 or later.
Few propose raising the age when benefits can first be claimed. The reason is that raising the ‘unreduced benefits age’ lowers program costs, while increasing the age of initial eligibility does not. The effect on long-term outlays is negligible because the delay in the payment of benefits until a later age triggers an increase in the amount of benefits paid in each period, calculated so that the expected present value of lifetime benefits is approximately unchanged.
One justification advanced for cutting annual benefits is that life-expectancy has increased. However, increases in longevity have not been concentrated among high earners. In contrast, across-the-board benefit cuts affect high and low earners alike. In fact, life expectancy among low earners has risen little in the last forty years.
Cutting benefits while continuing to permit workers to claim benefits at age 62 creates the possibility that early claimants who fail to anticipate the exhaustion or erosion of other income sources. The capacity of the ‘young-old’ to supplement pensions with earnings from part time work usually diminishes with age. Inflation erodes the value of most private pensions, as few are inflation adjusted. And private assets may be depleted, including defined-benefit pensions, which increasingly carry a lump-sum payment option.
For all these reasons, dependence on Social Security increases with age. These factors also help explain why the proportion of people with incomes below or near poverty increases with age. To avoid leaving the very old with meager Social Security benefits, some analysts have proposed that any increase in the ‘unreduced benefits’ age should be matched to an increase in the ‘initial entitlements’ age.In this paper, we compare certain characteristics of people in their early 60s who stop working with those who continue working. Over the early retirement ages, the differences appear to be small and to have changed little in recent years. We then estimate a simple equation that generates the degree to which various personal characteristics contribute to the decision to retire.