The Social Security Early Retirement Benefit as a Safety Net
This paper examines the health and economic status of those who collect Social Security retirement benefits prior to the full retirement age. It uses a propensity score reweighting method to estimate the fraction who use early retirement benefits as a safety net against deteriorating health and who might be induced to apply for disability benefits (SSDI) or retire without income replacement if the generosity or availability of early retirement benefits were reduced. About one in five early retirees have health characteristics similar to SSDI beneficiaries, and thus might not be able to replace losses in benefit income with labor income.
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As the baby boom generation begins to retire and fiscal pressures from entitlement programs become more acute, evidence of improving health and increasing life expectancy in these cohorts has led many to suggest taking advantage of improved work capacity among older adults by increasing age requirements for the Social Security and Medicare programs. Currently, however, more than half of workers start receiving Social Security benefits before they reach full retirement age, and many of those who do are in relatively poor health. Data from the 1990 Census show that roughly half of men and a third of women out of the workforce at age 62 identify themselves as having a health condition that limits their ability to work (Bound et al. 2000). While the health of the average 62-year-old may well have improved, policies that reduce availability of benefits (e.g., raising the early retirement age), or reduce their value (raising the full retirement age, thereby reducing monthly benefits for early retirees) will affect both the healthy and unhealthy alike. The purpose of this paper is to systematically investigate the extent to which the availability of early Social Security benefits provides a safety net for those in poor health, who are either not in poor enough health to be eligible for disability benefits or who, for whatever reason, did not apply for them.
The estimation strategy compares the distributions of observable characteristics between those who receive such benefits and those who do not. The larger the degree of overlap in these distributions, the larger the fraction of nonrecipients who might be eligible. One important policy implication of this estimate is that a larger potentially eligible pool among nonrecipients would reduce the desired labor force participation response to an increase in eligibility age. A further implication of finding a large amount of overlap in these distributions is that an increased eligibility age for retirement benefits could induce an increased rate of application for DI benefits.
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