Do retirement dreams come true? The effect of unexpected events on retirement age. Working Paper no

for their computer assistance and Richard Ippolito for a critical reading of earlier drafts. The 1983 amendments to the Social Security Act profoundly change the rules for accepting benefits in an attempt to solve the long-run fiscal problems of the system. However, important portions of the law will not come into effect until the turn of the century. It has been argued that this will allow workers to adjust to such changes more efficiently--a position sympathetic to the life-cycle view of labor supply decisions. In this paper, we look at the relationship between planned and actual retirement behavior and explicitly consider the effect of unexpected changes on retirement. We find that the retirement plans of workers ages 58-63 in 1969 were significantly affected over the next decade by unex-pected changes in government policy (social security), in their health, and in local labor market conditions. We show that when unexpected events 'occur, retirement dreams do not always come true, but that behavioral responses to these events are systematic. Hence, clear signals of future social security policy are important to workers