Retirement Benefits and Incentives for Work: New Evidence from Eligibility Criteria
Social Security is the largest federal program in the US, yet it is not a universal program. To quality for benefits, individuals must have accumulated at least 40 quarters of coverage (QCs) during their work history. This requirement creates an upward notch in individuals’ lifetime (earnings and retirement) income, providing a very large incentive for individuals to work at least 40 QCs. Using standard bunching methods, I show that individuals do indeed bunch at this threshold by working a few extra quarters, and that bunching increases as individuals get closer to the retirement age. The size of the response is however very small when compared to the size of the benefit, suggesting very small elasticities of work with respect to retirement benefits for this population.