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Changes in Spending and Labor Supply in Response to a Social Security Benefit Cut: Evidence from Stated Choice Data

Delavande, AL and Rohwedder, S (2017) 'Changes in Spending and Labor Supply in Response to a Social Security Benefit Cut: Evidence from Stated Choice Data.' Journal of the Economics of Ageing, 10. 34 - 50. ISSN 2212-828X

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Abstract

We investigate how individuals in the U.S. expect to adjust their labor force participation and savings if Social Security benefits were cut by 30 percent. Respondents were asked directly what they would do under this scenario. Using the resulting stated choice data we find that respondents would on average reduce spending by 18.2 percent before retirement and 20.4 percent after retirement. About 34.1% of respondents state they would definitely work longer and they would postpone claiming Social Security by 1.1 years. We investigate how working longer and claiming Social Security later would compensate partially for the loss in benefits among the individuals who are currently working, under the assumption that individuals retire and claim at the same time. Individuals would increase their Social Security benefits from the post-reform level due to additional earnings entering the benefit calculation and a smaller early claiming penalty (or higher delayed claiming credit). As a result, the Social Security benefit people would receive would drop on average by 21 rather than 30 percent. Still, the net financial loss, even after accounting for additional earnings, is sizeable for individuals in the lowest wealth tertile.

Item Type: Article
Uncontrolled Keywords: Social Security reform Stated choice Subjective expectations Health and Retirement Study
Subjects: H Social Sciences > H Social Sciences (General)
Divisions: Faculty of Social Sciences > Institute for Social and Economic Research
Depositing User: Elements
Date Deposited: 08 Sep 2017 15:40
Last Modified: 06 Sep 2018 01:00
URI: http://repository.essex.ac.uk/id/eprint/20350

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