The Effects of Subjective Survival on Retirement and Social Security Claiming

James P. Smith, RAND
Julie M. Zissimopoulos, RAND

This paper uses four survey waves of the Health and Retirement Study to examine the relationship between mortality risk and retirement and mortality risk and the propensity to take early and reduced Social Security benefits. We examine the predictions of a life-cycle model, and specify a statistical model that accommodates a sequential decision: retirement and, conditional on retirement, the take-up of Social Security benefits. Using a reduced form probit equation, we model the probability of retirement as a function of subjective survival probabilities, controlling for socio-economic status and health status. Among retirees we estimate the probability of taking early Social Security benefits as a function of wealth, income, personal characteristics, health and subjective survival probabilities. We find workers with low survival probabilities retire earlier than those with high survival probabilities and retired workers with low survival probabilities are more likely to claim early benefits than those with high survival probabilities.