How Did the Elimination of the Earnings Test Above the Normal Retirement Age Affect Retirement Expectations?

This study examines the effect of the 2000 repeal of the earnings test above the normal retirement age on retirement expectations of workers aged 51 to 61 - their probabilities to work past age 62 and 65 as well as the age at which they expect to start claiming old age social security benefits. We use administrative records linked to the HRS to create variables that accurately reflect the change in financial incentives. For men, we find results in line with theoretical predictions on the probability to work after age 65. For example, men whose marginal wage rate increased when the earnings test was repealed, showed the largest increase in the probability to work full-time past normal retirement age. For women, we do not find significant results, possibly due to omitting spouse benefits and their interaction with the earnings test. We also do not find significant evidence of effects of the repeal of the earnings test on the probability to work past age 62 or the expected claiming age. On the other hand, for those reaching the normal retirement age, deviations between the age at which Social Security benefits are actually claimed and the previously reported expected age are more negative in 2000 than in 1998, suggesting that the repeal has increased claiming immediately after reaching normal retirement age. Since our calculations show that the tax introduced by the earnings test was small when accounting for actuarial benefit adjustments and differential mortality, our results suggest that although workers form expectations in a way consistent with forward-looking behavior, they misperceive the complicated rules of the earnings test.

Future Beneficiary Expectations of the Returns to Delayed Social Security Benefit Claiming and Choice Behavior

We report on our preliminary findings from an innovative module of survey questions in the RAND American Life Panel designed to measure willingness to delay take-up of Social Security benefits. Among respondents who expect to stop working full time prior to turning age 62, over 60 percent report that they expect to start claiming Social Security benefits after they turn 63--that is, they expect to delay claiming. In contrast, among those who expect to stop full-time work sometime from age 62 to age 70, only about onequarter expect to delay claiming beyond the retirement age. Another main finding arises from reported probabilities of delayed claiming in hypothetical choice scenarios. These probabilities tend to be quite high relative to previous findings on delayed claiming outcomes. This result is particularly striking for those who are presented with information about the so-called "break-even age" for delayed claiming rather than information about the total amount of benefits that must be foregone during the one year delay.