NB19-12: The Effect of the Delayed Retirement Credit on Social Security Claiming and Employment

The delayed retirement credit in Social Security provides retired workers with a financial incentive to claim benefits after their full retirement age. Social Security reforms have increased the magnitude of this incentive substantially. In this project, we will investigate the effect of these increases in the delayed retirement credit on the claiming decisions of retired workers. To the extent that changes in the delayed retirement credit influence the timing of claiming benefits, it might also influence workers’ employment decisions. We will therefore investigate the effects of the policy changes on employment and earnings as well.
While much previous work has investigated the effect of the increase in the full retirement age (Mastrobuoni, 2009) and changes in the earnings test (Friedberg, 2000) on claiming decisions and employment outcomes, surprisingly little work has explored the effect of changes in the delayed retirement credit on behavior. This represents an important gap in the literature especially since the responses may influence future Social Security expenditures. To the extent that those with the longest life expectancies respond to the policy change by delaying claiming, outlays by the Social Security program may be much larger as a result.
To complete this work, it will be important to have access to micro-level data from the Social Security Administration with information on earnings, claiming dates, year-of-birth, and related measures. This will allow us to leverage the policy-induced variation in the delayed retirement credit, which rose gradually from just 3 percent per year for those born from 1918 to 1924 to 8 percent per year for those born in 1943 and later. The final paper will survey the literature, describe the data and policy changes, and summarize the results.