Social Security, Retirement and Wealth: Theory and Implications

27 Pages Posted: 11 Feb 2008

See all articles by Miles S. Kimball

Miles S. Kimball

University of Michigan at Ann Arbor - Department of Economics; University of Colorado Boulder; Center for Economic and Social Research, USC; National Bureau of Economic Research (NBER)

Matthew D. Shapiro

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 2003

Abstract

The effect of Social Security rules on the age people choose to retire can be critical in evaluating proposed changes to those rules. This research derives a theory of retirement that views retirement as a special type of labor supply decision. This decision is driven by wealth and substitution effects on labor supply, interacting with a fixed cost of working that makes low hours of work unattractive.

The theory is tractable analytically, and therefore well-suited for analyzing proposals that affect Social Security. This research examines how retirement age varies with generosity of Social Security benefits. A ten-percent reduction in the value of benefits would lead individuals to postpone retirement by between one-tenth and one-half a year. Individuals who are relatively buffered from the change┬┐because they are wealthier or because they are younger and therefore can more easily increase saving to offset the cut in benefits┬┐will have smaller changes in their retirement ages.

Suggested Citation

Kimball, Miles S. and Shapiro, Matthew D., Social Security, Retirement and Wealth: Theory and Implications (June 2003). Michigan Retirement Research Center Research Paper No. WP 2003-054. Available at SSRN: https://ssrn.com/abstract=1091503 or http://dx.doi.org/10.2139/ssrn.1091503

Miles S. Kimball (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

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University of Colorado Boulder ( email )

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HOME PAGE: http://www.colorado.edu/Economics/people/faculty/kimball.html

Center for Economic and Social Research, USC ( email )

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National Bureau of Economic Research (NBER)

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Matthew D. Shapiro

University of Michigan at Ann Arbor - Department of Economics ( email )

and Survey Research Center
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-5419 (Phone)
313-764-2769 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
313-764-5419 (Phone)
313-764-2769 (Fax)

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