New Evidence on the Social Security Incentives as Drivers of Retirement Behavior

Abstract

The paper uses a rich administrative dataset on Belgian older workers to provide new evidence on the impact of social security systems on retirement behavior. In addition to measures of financial incentives induced by the social security systems, we construct an eligibility status indicator. This indicator flags individuals who satisfy eligibility requirements for early retirement schemes. We find that financial incentives do not have a lot of explanatory power for the probability to retire. In contrast, being eligible for early retirement substantially increases the chances for an individual to exit the labor force. Using these findings, we evaluate the impact of changes in the early retirement eligibility rules. These changes are shown to have important effects on the median retirement age of older workers.

Keywords: Social Security System, Financial Incentives, Eligibility, Retirement Behavior, Policy Simulations

JEL Classification: H55, J14, J21, J26, D91