The growing gap in life expectancyraises serious questions about any further increases in the fullretirement age, since averages are becoming increasingly misleadingwhen it comes to anything linked to mortality. (Photo:Shutterstock)

(Bloomberg Opinion) –Something significant is happening inSocial Security: People are retiring and taking their benefitslater. These trends are at least in part the consequence of policychanges made in the early 1980s that were purposefully delayed intheir implementation.

Consider this: In 1997, 57 percent of men claiming theirretirement benefits under Social Security were 62, the earliest ageat which one can do so. By 2017, that share had dropped to 34percent because more people elected to put off claiming theirbenefits. As a result, the average age of a new male beneficiaryhas risen by a full year. (These data exclude disabledworkers. There are other ways of doing the calculations, butthey all show the same phenomenon.)

Not surprisingly, taking Social Security benefits later is alsoassociated with delayed retirement. According to data from theCurrent Population Survey tabulated by Courtney Coile of WellesleyCollege, 38 percent of those aged 62 to 64 were working in 1990. By2017, that share had risen to 53 percent.

Why are people delaying retirement and claiming their SocialSecurity benefits later? One explanation is increased lifeexpectancy and improved health. This probably isn't the fullexplanation, however, if only because life expectancy changes havebeen very uneven, as have changes in health status. A second factoris that private pensions have transitioned from defined- benefitplans to defined-contribution ones, and that creates less of anincentive to retire earlier.

Another important reason is changes made way back in 1983, whena Social Security reform following the Greenspan Commission'srecommendations gradually raised what is called the full retirementage from 65 to 67. Full implementation of those increases wasdelayed for almost 20 years, so that the changes wouldn'tunnecessarily disrupt retirement plans. The ongoing retirement agechanges have attracted very little recent public attention, eventhough the first tranche of the rise, to age 66, is already over,and we are almost halfway through the transition to 67, which willbe complete by 2022.

The rise in the full retirement age has two types of effects onwhen people decide to claim their benefits. The first is that itreduces the monthly benefit received at any given age. For example,when the full retirement age is 67, those deciding to take theirbenefits at 62 can do so only by accepting a 30 percent discountper month on the “full” benefit. When the full retirement age was65, the discount was 20 percent. (The goal of these adjustments isto offset the longer time those claiming their benefits earlierwill receive them, on average. Most of the evidence, however,suggests that many people claim their benefits too soon and wouldbe better off, in expected value, if they waited.)

The second, and more important, effect is that the fullretirement age creates a social norm influencing when people retireand also take their benefit. People may be drawn to the age atwhich benefits are called “full” even though there's nothingparticularly special that happens at that age. Therefore, when thefull retirement age is raised, people push back when they taketheir benefits.

The statistical evidence suggests that the increase in the fullretirement age has indeed delayed benefit claiming, most likelybecause of this anchoring effect.

So reforms enacted in 1983 are having an effect on how peoplenearing retirement behave today. Three conclusions follow:

First, delayed implementation with gradual phase-ins makespolicy reforms more politically viable. The ongoing increase in thefull retirement age is currently creating almost no politicalbacklash, because it requires no new vote by Congress and becauseit is happening gradually. That may provide a pathway forwardfor other policy changes that raise revenue or reduce otherexpenditures.

Second, the problem with delayed implementation is that theworld can change between enactment and implementation.

Policy makers in 1983, for example, likely did not foresee thatlife expectancy would stagnate for low- and moderate-income workersin the meanwhile. The growing gap in life expectancy raises seriousquestions about any further increases in the full retirement age,since averages are becoming increasingly misleading when it comesto anything linked to mortality.

Finally, the key role played by the full retirement age indriving decisions — well beyond what an Economics 101 model wouldsuggest — highlights the need for more policies to take behavioraleconomics into account.

Over the past decade, governments across the world have begunexploring how to use nudges and norms (Richard Thaler has won theNobel Prize in economics for work in the area). But while therehave been some limited successes, a large potential to betterincorporate psychology into public policy remains to be tapped.

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