The Effect of Social Security Auxiliary Spouse and Survivor's Benefits on the Household Retirement Decision - Job Market Paper

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Social Security provides benefits to a worker’s spouse or survivor that alter the work in- centives of both household members. In 2011, Social Security’s Spouse and Survivor’s Benefits amounted to $112 billion, or 3.1%, of Federal expenditures. This paper develops a structural life- cycle model of household savings, labor supply, and benefit claiming. Future health, mortality, and medical expenses are uncertain. The model is solved separately for each household so that it captures how Spouse and Survivor’s Benefits interact with the couple’s age difference, private pensions, and unique earning histories. I estimate the model by method of simulated moments using data from the Health and Retirement Study. I simulate how responsive husbands’ and wives’ retirement decisions are to Spouse and Survivor’s Benefits.

I find that: husbands and wives respond sharply to changes in the Survivor’s Benefit, but little to changes in the Spouse’s Benefit; the annuity provided by the Survivor’s Benefit, even if reduced, creates a strong incentive for the couple’s high earner to continue working; reducing the Spouse and Survivor’s Benefits by half achieves 74.1% of the savings from their elimination. In addition, the model can explain high rates of benefit claiming at age 62 and joint retirement. 

© David M. K. Knapp, 2013