Retirement Responses to Early Social Security Benefit Reductions

This paper evaluates potential responses to reductions in early Social Security retirement benefits. Using the Health and Retirement Study (HRS) linked to administrative records, we find that Social Security coverage is quite uneven in the older population: one-quarter of respondents in their late 50’s lacks coverage under the Disability Insurance program, and one-fifth lacks coverage for old-age benefits. Among those eligible for benefits, respondents who subsequently retired early appear quite similar initially to those who later filed for normal retirement benefits, but both groups were healthier and better educated than those who later filed for disability benefits. Next we investigate the potential impact of curtailing, and then eliminating, early Social Security benefits. A life-cycle model of retirement behavior provides estimated parameters used to simulate the effects of cutting early Social Security benefits on retirement pathways. We find that cutting early Social Security benefits would boost the probability of normal retirement by twice as much as it would the probability of disability retirement.