The Impact of Social Security on Early Retirement: A Cross-Country Analysis

Thesis advisor: Matthew RutledgeThis paper explores the relationship between social security wealth (SSW) and the decision to retire early in five countries: the United States, Germany, Denmark, Poland, and Australia. Individual probit regressions are used to analyze the impact of SSW on early retirement in each specific country. Next, a cross-country probit model including the United States, Germany, and Denmark is estimated to highlight the same relationship in three very different social insurance schemes. Finally, a counterfactual experiment is run in order to examine the impact of a 6.67 percent benefit cut on the likelihood of early retirement. This paper finds that SSW is associated with a greater likelihood of early retirement in the United States, Poland, and Denmark. However, these results are only statistically significant in the United States and Poland. Conversely, the relationship is statistically significant and negative in Australia, and statistically insignificant and negative in Germany. The counterfactual experiment reinforces these findings, demonstrating a particularly high responsiveness of a benefit cut in Denmark and Poland relative to the other countries. The results of the cross-country model finds that SSW has the largest positive effect on early retirement in the United States, followed by Germany, and finally Denmark. However, these contradictory results are not statistically significant. This paper presents interesting policy implications to consider in the United States. The statistically significant but small effect of SSW on early retirement in the United States indicates that policies aimed at reducing benefits as a means of decreasing the likelihood of early retirement may not be the most effective. Additionally, the creation of a system similar to Australia’s low-cost superannuation may be worth investigating, as superannuation benefits appear to have a similar negative impact on early retirement as pension benefits in the United States.Thesis (BA) — Boston College, 2017.Submitted to: Boston College. College of Arts and Sciences.Discipline: Departmental Honors.Discipline: Economics