Aching to Retire? The Rise in the Full Retirement Age and its Impact on the Disability Rolls

Abstract

The Social Security Amendments of 1983 reduced the generosity of Social Security retired worker benefits in the U.S. by increasing the program's full retirement age from 65 to 67 and increasing the penalty for claiming benefits at the early retirement age of 62. These changes were phased in gradually, so that individuals born in or before 1937 were unaffected and those born in 1960 or later were fully affected. No corresponding changes were made to the program's disabled worker benefits, and thus the relative generosity of Social Security Disability Insurance (SSDI) benefits increased. In this paper, we investigate the effect of the Amendments on SSDI enrollment by exploiting variation across birth cohorts in the policy-induced reduction in the present value of retired worker benefits. Our findings indicate that the Amendments significantly increased SSDI enrollment since 1983, with an additional 0.6 percent of men and 0.9 percent of women between the ages of 45 and 64 receiving SSDI benefits in 2005 as a result of the changes. Our results further indicate that these effects will continue to increase during the next two decades, as those fully exposed to the reduction in retirement benefit generosity reach their fifties and early sixties.