Accounting for Social Security claiming behavior

Pashchenko, Svetlana and Porapakkarm, Ponpoje (2022): Accounting for Social Security claiming behavior.

Abstract

Why most people claim Social Security benefits early? And why early claimers tend to work less? We investigate the role of preferences and institutions in claiming decisions using a structural framework. A claiming decision represents an annuitization problem, which is linked to labor supply through the Social Security earnings test. We find that this test is distortive and conceals the true size of the early claiming (or annuity) puzzle: without it, even more people would claim early. We show that this unwillingness to annuitize can be explained by combining the impatience and bequest motives in various degrees. We suggest the empirical strategy to disentangle the effects of these preferences and uniquely pin down their relative contribution. In our policy analysis, we find that rewarding claiming delay with lump-sum payments combined with the removal of the earnings test produces large welfare gains.

• Item Type: MPRA Paper
• Language: English
• Keywords: Social Security, retirement, annuities, consumption and saving, life-cycle model
• Subjects: D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies

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