Social Security, work incentives, and retirement behavior of older men

This study analyzes the retirement behavior of elderly American men and evaluates economic incentives and disincentives that control how and when they wind down their working lives. The focus is on what is referred to as "gradual retirement." In contrast to the sharp discontinuity in full time---full year work one day and complete retirement the next, gradual retirement combines partial employment and partial retirement. The advantage of gradual retirement is that it allows older workers to obtain some of the benefits of both continued employment and retirement. The key to this result is increased labor force participation by older Americans especially those in bottom half of the earnings distribution.; A gradual retirement plan is proposed, which contributes to the long-term viability of the Social Security system. The plan is designed to help poor elderly workers continue to work beyond the early retirement age by offering a flexible extension of working life and by compensating for lost earnings caused by reduced hours. The plan also offers cash rewards to all older workers who work beyond normal retirement age. The dissertation shows that with properly structured incentives government policy can encourage gradual retirement rather than early and complete retirement and contribute to both greater welfare of older workers and the solvency of the Social Security system.; This research finds that the usual retirement hazard rates do not correctly represent the behavior of the elderly labor force and suggests a new way to calculate the measure from survey data. Using a new method of retirement hazard rates, the dissertation investigates the early retirement behavior of older workers. Unlike previous research, this dissertation finds that the existence of social security and the amounts of social Security benefits are significantly associated with early retirement. This indicates that changes in the eligible age and severe disincentives for early retirement would have a large impact on the early retirement trend. A simulation study supports the effectiveness of gradual retirement and flexible benefit formula.