Working Paper: NBER ID: w20916
Authors: Courtney Coile
Abstract: A rising share of older workers in the U.S. make use of the Disability Insurance (DI) program in their transition to retirement, with about one in seven men and one in nine women ages 60 to 64 now enrolled in the program. This study explores how financial incentives from Social Security and DI affect retirement decisions, using an option value approach. We find that financial incentives have a significant effect on retirement, particularly for those in poor health or with low education, who may be more actively considering retirement at younger ages. Simulations suggest that increasing the stringency of the screening process for DI would increase the expected working life of DI applicants.
Keywords: disability insurance; retirement; financial incentives; social security
JEL Codes: J14; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial incentives (M52) | Labor force participation (J21) |
| Financial incentives from social security and disability insurance (H55) | Retirement decisions (J26) |
| Larger financial incentive to delay retirement (J26) | Lower probability of retirement (J26) |
| Inclusive option value measure (C43) | Probability of retirement (J26) |
| Probability of disability insurance receipt (G52) | Education (I29) |
| Health status (I14) | Relationship between financial incentives and retirement decisions (J26) |
| 10,000-unit increase in option value (G13) | Reduction in probability of retirement (J26) |
| One-standard deviation increase in option value (C69) | Decrease in retirement probability (J26) |