ACCOUNTING FOR SOCIAL SECURITY CLAIMING BEHAVIOR

Abstract

We study why Social Security benefit claiming is concentrated at two ages, 62 and the full retirement age, and provide three main findings. First, we show that claiming behavior can be well explained by a parsimonious life-cycle model with fully rational agents. The two key mechanisms are (i) the strong unwillingness to hold annuities and (ii) the effects of the earnings test. Second, we show that current rules distort claiming and labor supply decisions, and eliminating these distortions results in large welfare gains. Finally, we show that claiming decisions can be used to sharpen the identification of important preference parameters.