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November 29, 2017

Health of Americans who Must Work Longer to Reach Social Security Retirement Age

By Chichun Fang

Old hands on the keyboard Delaying the age that retiring workers become eligible to receive the full amount of retirement benefit is an often-proposed solution to improve the financial stability of the Social Security system. Such proposal implicitly assumes that, on average, cohorts born later have higher life expectancy, so delaying the 'full' retirement age should not decrease the amount of lifetime benefit that these people eventually receive. However, in a paper recently published in Health Affairs, HwaJung Choi and SRC Professor Bob Schoeni showed that American workers born later are not in better health condition than the cohorts born earlier.

The original Social Security Act set the age for American workers to receive 'full' (unreduced) retirement benefits at 65. To reflect the increasing life expectancy, the 1983 Amendments set a gradual increase in the 'full' retirement age for people born after 1937. The increase was phased in over a 22-year period, eventually raised the full retirement age to 67 for people born in 1960 or later. Hence, according to the current rule, cohorts born later have to work up to two years longer before they are eligible to receive the full benefits than the cohorts born earlier.

Using data from the Health and Retirement Study (HRS) and the National Health Interview Survey (NHIS), Choi and Schoeni divided people born between 1933 and 1962 into four groups: those who are eligible to receive full retirement at age 65 (born 1933-1937), between 65 and 66 (born 1938-1942), at age 66 (born 1943-1954), between 66 and 67 (born 1955-1959), and at age 67 (born 1960-1962). They then examined several indicators of health conditions when each of these cohorts was at age 55-60. By comparing the health indicators at the same age across cohorts, they were able to show how health conditions have changed for each birth cohort in years leading to their respective retirement ages.

Choi and Schoeni found that, cohorts born more recently (and hence are only eligible to receive full Social Security benefit at ages higher than 65) are more likely to have limitations in their cognitive abilities and activities of daily living (ADL), as well as more likely to self-report as having fair or poor health, than the cohorts born earlier who can receive full benefit at age 65. When they split the sample by birth cohorts and levels of education, they also found that, holding the level of education constant, American workers who are eligible to receive full Social Security retirement benefit at later ages have higher morbidity of ADL limitations than those eligible to receive full benefit at age 65. The results regarding limitations in physical functioning and instrumental activities of daily living (IADL) are somewhat mixed; nevertheless, there is no evidence that the cohorts born later are in better health conditions than those born earlier.

Results reported by Choi and Schoeni are consistent with recent evidence that the health of near-elderly Americans has not improved in the past two decades. Given that people tend to claim retirement benefit at a later time as the full retirement age rises, the declining health conditions may lead to a higher share of workers in poor health conditions in the labor market. This would create challenges to employers and could potentially further destabilize the Social Security Disability Insurance (DI) program. Further increasing the full retirement age for the cohort approaching retirement may also cause substantial burden on these cohorts.

This article is published in Health Affairs:
HwaJung Choi and Robert F. Schoeni (2017). Health Of Americans Who Must Work Longer To Reach Social Security Retirement Age. Health Affairs, 36(10).