The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth

49 Pages Posted: 8 Nov 2002

See all articles by Alan L. Gustman

Alan L. Gustman

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Thomas L. Steinmeier

Texas Tech University - Department of Economics and Geography

Multiple version iconThere are 4 versions of this paper

Date Written: September 2002

Abstract

This paper specifies and estimates a structural life cycle model of retirement and wealth that explains the peaks in retirement both at ages 62 and at 65. Our estimates suggest that leisure and time preference are widely distributed among the population, with a bimodal distribution of time preference. Discount rates are either very low or very high. Those with high discount rates find the actuarial adjustments in Social Security benefits, which use a 3 percent real interest rate, to be inadequate. Once they reach age 62, the benefit accrual profile declines with age. This is the major explanation for the spike in retirement activity at 62. Liquidity constraints from inability to borrow on Social Security and pension benefits add to this effect.

Simulations with the model suggest that raising the Social Security early entitlement age from age 62 to 64 will shift about three fifths of the bunching of retirements at age 62 to age 64. The bunching amounts to about 8 percent of the population, so raising the Social Security early age of entitlement will cause about 5 percent of the population to delay their retirement, implying a substantial effect on the Social Security system and its finances.

JEL Classification: H55, J26, J14, J32, E21, D31, D91, I3

Suggested Citation

Gustman, Alan L. and Steinmeier, Thomas L., The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth (September 2002). Available at SSRN: https://ssrn.com/abstract=334005 or http://dx.doi.org/10.2139/ssrn.334005

Alan L. Gustman (Contact Author)

Dartmouth College - Department of Economics ( email )

6106 Rockefeller Center
Hanover, NH 03755
United States
603-646-2641 (Phone)
603-646-2122 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thomas L. Steinmeier

Texas Tech University - Department of Economics and Geography ( email )

Lubbock, TX 79409-2101
United States
806-742-2201 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
77
rank
161,104
Abstract Views
1,547
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information