Study Says Social Security Shifts Influencing Retirement Patterns

A new study suggests that changes in Social Security rules have influenced retirement and working patterns.

In “How Changes in Social Security Affect Recent Retirement Trends” (National Bureau of Economic Research (NBER) Working Paper No. 14105), co-authors Alan Gustman (of Dartmouth College) and Thomas Steinmeier (of Texas Tech University) find that rule changes increased full-time work by married men ages 65 to 67 by about 9% between 1992 and 2004, encouraged later retirement, promoted the return to full-time work after retiring, and facilitated working part-time after retirement. All in all, according to the report, those changes account for about one-sixth of the increase in labor force participation by 65- to 67-year-old married men between 1998 and 2004.

The paper notes that one of the main reasons for enacting the 1983 Social Security reforms in the United States was to increase the labor force participation rate of older workers. Additionally, in 2000 Congress further expanded work incentives by abolishing the Social Security earnings test for people over the normal retirement age. As a consequence, the authors assert that in 2004 more men over age 65 were working than in earlier years. In fact, overall, between 1998 and 2004 there was a 3.1 percentage point decline in the fraction of 65- to-67-year-old men who were completely retired, according to the report.

Aging Induced?

Among the changes in government policies that the paper’s authors say were “induced by the aging of the baby boomers” were the abolition of mandatory retirement and the adoption of other rules prohibiting age discrimination and encouraging delayed retirement. Moreover, employment and compensation policies of firms were also changed to encourage continued work.

An important change cited was the trend away from defined benefit plans, which often had exerted strong incentives for early retirement, to defined contribution plans, which the authors said were “more neutral when it comes to encouraging retirement at a particular age.”

On the other side of the ledger, rising incomes; rapid advances in technology; the rise of international competition; and the decline of unionized, durable goods, and other industries also exert pressures toward earlier retirement. Changing labor market participation decisions of women also may influence their husbands’ retirement decisions, according to the report.

Isolating Experiences

To isolate the effect of Social Security rule changes from other factors — such as the abolition of mandatory retirement ages, changes in employment and compensation policies, rising incomes encouraging early retirement, the stock market boom, and the rising labor force participation rates of women, the authors estimate a retirement model using Health and Retirement Survey data on 2,231 married men. They then simulate the effects of evolving Social Security rules, assuming that each individual has the work history actually experienced. Individual time preference rates are varied, so that some people respond strongly to delayed incentives and others respond only to incentives that affect current consumption.

By age 65, only 15.9% are working on their main job, with 7.4% working full-time after having retired, and 17.1% partially retired. Thus, the study’s authors note that by 65 as many older men are partially retired as are working on their main job. In fact, by age 65, 59.6% of the married male population is fully retired, out of the labor force entirely, they note, and by age 69, just 7.9% are working full-time on their main job, 8.3% are working full-time after having retired, and 16.6% are partially retired.

The study’s baseline model’s estimates suggest that the value of retirement leisure is increasing by 5.4%, which the authors characterized as “a relatively low value, suggesting that economic incentives can change work effort in retirement.” Poor health increases the value of retirement leisure by approximately the same amount as being seven years older, and individuals may change their perception of retirement after they experience it, with some deciding to go back to work, they noted.

Different Strokes

The authors of the study did note that the experience of younger men was different. Labor force participation rates declined for men age 50 to 56, and they noted that more men were retired at younger ages in 2004 than in previous years. For example, in 1998, 80.4% of men 50 to 56 years old worked full-time. By 2004, only 75.5% did so.

The study notes that almost two percentage points of the decline in the number working full-time is mirrored by a corresponding increase in the share of 50- to 56-year-old males working part-time (defined as working 100 to 1249 hours). “But again, in contradiction to the idea that early retirement is becoming less common, the fraction of 51 to 56 year old males fully retired (i.e., working less than 100 hours per year) increased from 16.2 percentage points in 1998 to 19.4 percent in 2004,” the study notes.

The simulation results further suggest that differences in Social Security rules have no effect prior to age 62. According to the study, that means that the decline in labor force participation observed for those in their 50s has another cause.

As for women, the study noted that the trend to increased labor force participation of women is found to be reflected in lower retirement rates, with work effort of older women having increased consistently through all age groups.


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