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Financial Hardship before and after Social Security's Eligibility Age

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Document date: March 20, 2009
Released online: March 24, 2009


Although poverty rates for Americans age 65 and older have plunged over the past half century, many people continue to fall into poverty as they approach 62, Social Security's early eligibility age. Among those who did not complete high school, hardship rates increase from 23 percent at age 52 to 54 to 31 percent at age 60 to 61, a relative increase of 36 percent. Hardship rates decline after age 62, when most people qualify for Social Security. These findings highlight the fragility of the income support system for Americans in their fifties and early sixties.

Executive Summary

Although poverty rates for Americans age 65 and older have plunged over the past half century, many people continue to fall into poverty in their late fifties and early sixties. Disability and job displacement frequently create financial hardship for people throughout the working-age population, but the risks are particularly serious in the years just before age 62. Health problems become increasingly common with age, and older people displaced from their jobs by layoffs or business closings often face special difficulty finding work. The limited availability of public income supports magnifies economic insecurities for older workers who are not yet 62, when eligibility for Social Security retirement benefits begins. Social Security disability insurance benefits are available only to workers who successfully navigate an arduous and unpredictable application process, and may begin no sooner than five months after disability onset. Increasing numbers of displaced workers fail to qualify for unemployment benefits, and those who do qualify receive benefits for only a limited time. Raising Social Security's early eligibility age, which many analysts advocate, could leave more older Americans at risk of financial hardship.

This study examines financial hardship rates in the years before qualifying for Social Security retirement benefits at age 62 and shows how the availability of Social Security improves economic well-being at later ages. Data come from the University of Michigan's Health and Retirement Study (HRS), which has been collecting longitudinal employment, health, and financial data on a large sample of older Americans since 1992. The analysis follows a sample of adults from the 1937-39 birth cohort for 14 years, tracking their employment, disability status, and income as they age from their early fifties until their late sixties. It measures the share of older adults who appear to have been forced into retirement by health or employment shocks and the apparent impact of involuntary retirement on low-income rates. The study also estimates models of the likelihood that older adults experience financial hardship before reaching the Social Security early eligibility age.

The results show that the likelihood of experiencing financial hardship increases significantly as people approach Social Security's early eligibility age. The increase in hardship rates is concentrated among workers with limited education and those with health problems. Hardship rates decline after age 62, when most people qualify for Social Security retirement benefits.

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Topics/Tags: | Employment | Poverty, Assets and Safety Net | Retirement and Older Americans

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