Does Household Debt Influence the Labor Supply and Benefit Claiming Decisions of Older Americans?

Abstract

Americans’ indebtedness increased dramatically since the 1980s — a trend likely to have important implications for retirement security. On one hand, higher indebtedness might compel individuals to keep working and delay Social Security benefit claiming so they can pay off their financial obligations, but on the other hand, it may induce those who are cash-strapped and unable to service their debt to claim their benefits as soon as possible. This paper uses data from the Health and Retirement Study to examine how household debt or liquidity constraints might impact the labor supply and benefit claiming behavior of older individuals, a question that previous literature has not addressed. Results show that having household debt, particularly in the form of outstanding mortgages, is positively related to older adults’ likelihood of delaying retirement and Social Security benefit receipt. We find that older adults with debt are 8 percentage points more likely to work and 2 percentage points less likely to receive Social Security benefits than those without debt.

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