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A Dynamic Model of Retirement and Social Security Reform Expectations: A Solution to the New Early Retirement Puzzle
by Hugo A. Benítez-Silva, Debra Sabatini Dwyer and Warren C. Sanderson
WP 2006-134
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- Workers’ uncertainty over future potential benefit cuts helps to explain the puzzle of early Social Security claiming: because they fear that future benefits might not be there for them, many workers take benefits as soon as they are available.
- Reform that would eliminate the need for future benefit reduction could alleviate the problem of early take-up. Such reform would likely mean significant welfare losses for some.
- The appropriate modeling of the Earnings Test incentive structure is key to understanding why claiming behavior seems to have remained unaffected by the recent increases in the normal retirement age.
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