Ellen Stuart, University of Sydney - The Effects of Increasing the Full Retirement Age on Retirement Savings

Title: The Effects of Increasing the Full Retirement Age on Retirement Savings: Evidence from U.S. Tax Data

Abstract: We study how the U.S. Social Security program influences retirement savings. Our context is a 1983 reform that reduced old-age benefits by increasing the Full Retirement Age (FRA) in discontinuous, two-month increments for several birth cohorts. Each two-month increase in the FRA corresponds to a $4,140 loss in lifetime discounted Social Security wealth on average. Using full-population administrative tax data and a stacked regression discontinuity design, we estimate the causal effects of the reform on earnings and retirement savings. We find a $1,900 increase in the present discounted value of earnings between ages 62 and 72 and a $200 increase in the present discounted value of contributions to employer-sponsored retirement savings plans over the same age range. Notably, these responses take place about two decades after the announcement of the reform. Our study provides the first precisely estimated effects of the 1983 reform on savings and emphasizes an important link between earnings and savings at older ages in settings where people are covered by workplace retirement plans.

Presenter: Ellen Stuart, University of Sydney

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