Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

Luc Behaghel (1, 2) , David M. Blau (3, 4)

1 PSE - Paris-Jourdan Sciences Economiques
2 PSE - Paris School of Economics
3 OSU - Ohio State University [Columbus]
4 IZA - Institute for the Study of Labor

We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two-month increments per year of birth. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion.

Keywords: Intertemporal Consumer Choice; Life Cycle Models and Saving; Social Security and Public Pensions; Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination; Retirement; Retirement Policies

Domains: Quantitative Finance [q-fin]; Risk Management [q-fin.RM]

Luc Behaghel, David M. Blau. Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age. American Economic Journal: Economic Policy, 2012, 4 (4), pp.41-67. ⟨10.1257/pol.4.4.41⟩. ⟨hal-00772844⟩