IMPACT OF PREDICTED SOCIAL SECURITY WEALTH ON RETIREMENT DECISIONS AND HOUSEHOLD SAVINGS: EVIDENCE FROM THE UNITED STATES

Abstract

The social security system in the United States has attracted significant research interest. This paper serves to examine the effect of predicted individual social security wealth at the Normal Retirement Age (NRA) on the individual’s retirement decision, and the effect of predicted household social security wealth on household savings. Although the analyses are made at the individual level and household level respectively, the decisions are nonetheless interrelated and occur simultaneously. This study employs a fixed effects regression with the use of panel data. It is estimated empirically that a $100,000 increase in the individual’s predicted social security wealth at NRA increases the probability of retirement by around 1.86 percentage points while the predicted household social security wealth at NRA has no effect on household savings. The latter contributes to the age-old argument of whether social security wealth has any impact on households’ lifetime consumption-savings decisions.