Association for Public Policy Analysis & Management

Few American workers expect to receive their promised retirement benefit from Social Security due to the perceived financial weakness of the benefit system. Since 1998, clear majorities of workers have described the Social Security system as having “major problems” (45 percent) , while a growing share (21 percent) believes the system is in a “state of crisis” (Gallup, 2016).[1] Over the same period, a comparable proportion of workers (70 percent) have consistently reported that they believe the system will go bankrupt in their lifetime (Washington Post, 2005). Not surprisingly, most workers nearing retirement also believe that they will receive either a reduced retirement benefit (42 percent) or no benefit at all (28 percent) when they retire (Pew Research Center 2014). The widespread concern among workers about future benefit reductions is not entirely unfounded as Social Security currently pays out more in benefits than it collects in taxes. Left unaddressed, this funding gap is projected to result in a 29 percent reduction in the scheduled benefit payments starting in 2029, at which point the trust fund will be exhausted (Congressional Budget Office, ).

One important question is whether workers’ subjective expectations about the future loss of some or all of their retirement benefits due to the financial imbalances of the Social Security system influence when a worker claims their benefit. The more likely workers believe it is that their benefit will be reduced, the more likely they may be to claim early in order to “get as much as they can” before their benefits are reduced or the system goes “bankrupt”. In these instances, the reductions workers hope to avoid can be self-fulfilling, as their monthly retirement benefit amount will be reduced for each month he or she claims before age 70. More than just an ironic outcome, this possibility has important implications for the financial well-being of retired workers as Social Security benefits are the largest financial asset held by most householdsas well as their primary source of income in retirement (Porterba, Venti, and Wise, 2011; Social Security Administration, 2016).

The present study examines whether the timing of workers’ claiming decisions are a function of their perceived likelihood that Congress will reduce the retirement benefit that they expect to receive from Social Security prior to claiming. Panel data from the Health and Retirement Study and a discrete-time hazard model are used to examine this possibility. The results from this analysis provide conditional support for the expectation that an anticipated benefit reduction induces early claiming. This relationship was evident among benefit-eligible workers are retired but not their employed counterparts. That is, this expectation becomes a salient consideration among the mix of factors that workers incorporate into determining when they claim once they are no longer employed. The reasons for these results are explored, including endogeneity, along with some policy implications.