To claim or to retire: The social security claiming decision of employed and unemployed workers

Abstract

Purpose

The purpose of this paper is to use the Health and Retirement Study to examine the social security (SS) claiming decision of older Americans, with a focus on the behavior of the unemployed.

Design/methodology/approach

Using a duration model first, and a bivariate probit framework then, the author investigates whether older unemployed individuals lacking liquidity use SS benefits as a safety net in order to finance consumption during an unemployment episode, even if they do not retire at the same time. In this way, SS might be thought as a form of unemployment insurance (UI) which would allow them to maintain their standard of living during their job search.

Findings

The author finds evidence of a claiming pattern specific to the unemployed: they claim sooner than full-time workers, even when they do not retire at the same time. They also seem to discontinue this behavior when their access to UI is extended, which gives support to the author’s hypothesis that the unemployed workers, who lack liquidity, claim their SS benefits even if they do not wish to retire, as a source of alternative unemployment benefits.

Originality/value

By focusing on the SS claiming behavior of the unemployed rather than on their retirement patterns, this paper sheds light on the social insurance role of SS retirement benefits for unemployed workers who are not willing to retire, but need a new source of income while they continue looking for a job.

Citation

Fawaz, Y. (2017), "To claim or to retire: The social security claiming decision of employed and unemployed workers", International Journal of Manpower, Vol. 38 No. 3, pp. 392-416. https://doi.org/10.1108/IJM-08-2015-0127