The Effect of Expected Longevity on Retirement and Social Security Claiming

Inspired by Hurd et.al (2004), this paper aims to estimate the effect of expected longevity on older Americans' decisions on time of retirement and Social Security benefit claiming. Instead of using self-rated survival probabilities, which are endogenous and suffer from measurement errors, I predict the expected longevity from a proportional Gompertz survival model with frailty and a rich set of variables such as parents’ mortality information, current health and social economic variables for all respondents in Health and Retirement Study over 10 waves. The survival model naturally incorporates the nature of aging process and reflects deteriorating health any person faces in their older ages. By inserting the predicted longevity as one of the independent variables in a Bivariate Probit model for the joint decisions of retirement and Social Security benefit claiming, I have found significant evidence that for both genders, the longer a person is expected to live, the later he/she would retire. The effect on the time of Social Security claiming is nonlinear because of the current Social Security benefit take-up rules such that there is no incentive to delay benefit take-up after age 70. The simultaneous discrete hazard model will also be applied for the joint decision processes with a common individual heterogeneity to capture the unobserved factors which affect both retirement and benefit take-up decisions.   

JEL: J22, J26, J14, D1, I1

Keywords:  Social Security Retirement Benefit, Retirement, Longevity, Mortality, Aging, Health.