Individuals' Responses to Social Security Reform

32 Pages Posted: 21 Oct 2008

See all articles by Adeline Delavande

Adeline Delavande

New University of Lisbon - Faculdade de Economia

Susann Rohwedder

RAND Corporation

Date Written: September 29, 2008

Abstract

The Social Security trust fund is predicted to be depleted by 2041. While there are several viable reform proposals to restore long-term solvency of the Social Security system, one important element that is critical to the success of any reform remains unknown: how will individuals respond to, for example, a cut of their Social Security benefits. Will they work longer or save more or both, and to what extent will their response make up for the cut in benefits? In this paper we use data from the HRS Internet Survey where we asked respondents directly what they would do if everyone's Social Security benefits were cut by 30 percent. At a qualitative level, we find important differences in the response by sex, marital status, and SES, among others. We conduct a detailed quantitative analysis of response to timing of Social security claiming and find that on average individuals would postpone claiming Social Security by 1.13 years. If this time was spent working by everyone then the annual Social Security benefit would drop on average by 20 percent rather than the initial 30 percent imposed by the reform. In other words the response to claim later and work longer would make up for one third of the initial cut in Social Security benefits.

Suggested Citation

Delavande, Adeline and Rohwedder, Susann, Individuals' Responses to Social Security Reform (September 29, 2008). Michigan Retirement Research Center Research Paper No. WP 2008-182. Available at SSRN: https://ssrn.com/abstract=1287660 or http://dx.doi.org/10.2139/ssrn.1287660

Adeline Delavande (Contact Author)

New University of Lisbon - Faculdade de Economia ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+35 1 21 380 16 00 (Phone)
+35 1 21 387 09 33 (Fax)

HOME PAGE: http://docentes.fe.unl.pt/~adeline/page2.html

Susann Rohwedder

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

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