The Impact of Social Security Eligibility and Pension Wealth on Retirement

Abstract

I investigate a Danish policy reform that postpones social security eligibility in response to increases in life expectancy. The reform creates sharp discontinuities based on exact birth dates, enabling the identification of causal effects. Using both administrative and survey data, I document a substantial increase in labor force participation of 20 percentage points as a result of the delay. The effect is strongest among individuals with low pension wealth. This pattern holds across multiple retirement age thresholds and cohorts, including both those who have already retired and younger cohorts still in the labor force. The findings provide new evidence on the effects of life expectancy-based adjustments to social security eligibility. The estimated net fiscal gain of delaying eligibility by half a year is e8.4k per affected individual. However, the effect is unevenly distributed, with low-wealth individuals contributing more than high-wealth individuals, raising concerns about the equity implications of such reforms.

Keywords: retirement age, social security, labor supply

JEL Classification: J26, H55