Depending on workers’ circumstances, these policies can provide  incentives to retire at certain ages, and send signals or set norms about  when it is appropriate to retire. In general, the availability of Social Security  benefits at age 62 offers an incentive to retire before full retirement age,  though changes in program rules are progressively weakening that  incentive. The Social Security full retirement age, which has  traditionally been age 65, is gradually rising to 67. The increase in full retirement age and the larger penalty for early  retirement reduce the incentive to start drawing Social Security benefits  and retiring early. As such, it provides an incentive to reduce the number of hours  worked or stop working altogether. On the other hand, Medicare’s availability at 65 can be an incentive to  retire before Social Security’s rising full retirement age. Half of Workers Retire Well before Their Full Retirement Age, Although Early Evidence Points to Some Changes Following Recent Implementation of Social Security Policies

About half of those in the HRS study group reported being fully retired by  the time they reached age 63, and over the last several years SSA data  indicate that nearly half started drawing benefits at age 62 and 1 month,  their earliest opportunity to do so. Following Elimination of the Earnings Test, More Workers Are Remaining in the Labor Force beyond Full Retirement Age

Along with these modest delays in claiming Social Security benefits that  are associated with the rising full retirement age, we found that some  increases in labor force participation coincided with the elimination of the  earnings test in January 2000. Tax-Favored Private Retiree Health Insurance and Pension Plans May Influence Retirement Patterns

We found employer-provided retiree health insurance and pension plans  are strongly associated with when workers retire based on our analysis of  retirement behavior using the HRS. Workers with Employer- Provided Retiree Health Benefits Have Been More Likely to Retire before 65

Our analysis of retirement behavior suggests that workers who have  access to health insurance in retirement are substantially more likely to  retire before becoming eligible for Medicare at age 65 than those without  such access. We also found that workers with retiree health insurance were  more likely to retire before they became eligible for early Social Security  benefits at the age of 62 (109 percent and 76 percent more likely,  respectively for men and women). On the other hand, we found that  men with DC plans were 47 percent less likely to retire by 62 than those  without DC plans. With so many factors  influencing workers’ decisions about when to retire, changes may be  gradual and limited. For example, as Social  Security’s full retirement age rises to age 67, Medicare’s eligibility age  remains at 65. Appendix I: Objectives, Scope, and Methodology

Our objectives were to 1) identify incentives federal policies provide about  when to retire; (2) determine recent retirement patterns and whether there  is evidence that recent changes in Social Security requirements have  resulted in later retirements; and 3) determine if there is evidence that tax- favored private retiree health insurance and pension benefits influence  when people retire.
Why GAO Did This Study

While many factors influence workers' decisions to retire, Social Security, Medicare, and pension laws also play a role, offering incentives to retire earlier and later. Identifying these incentives and how workers respond can help policy makers address the demographic challenges facing the nation. GAO assessed (1) the incentives federal policies provide about when to retire, (2) recent retirement patterns and whether there is evidence that changes in Social Security requirements have resulted in later retirements, and (3) whether tax-favored private retiree health insurance and pension benefits influence when people retire. GAO analyzed retirement age laws and SSA data and conducted statistical analysis of Health and Retirement Study data. Under the Comptroller General's authority, GAO has prepared this report on its own initiative.

What GAO Found

Federal policies offer incentives to retire both earlier and later than Social Security's full retirement age depending on a worker's circumstances. The availability of reduced Social Security benefits at age 62 provides an incentive to retire well before the program's age requirement for full retirement benefits; however, the gradual increase in this age from 65 to 67 provides an incentive to wait in order to secure full benefits. The elimination of the Social Security earnings test in 2000 for those at or above their full retirement age also provides an incentive to work. Medicare's eligibility age of 65 continues to provide a strong incentive for those without retiree health insurance to wait until then to retire, but it can also be an incentive to retire before the full retirement age. Meanwhile, federal tax policy creates incentives to retire earlier, albeit indirectly, by setting broad parameters for the ages at which retirement funds can be withdrawn from pensions without tax penalties. Nearly half of workers report being fully retired before turning age 63 and start drawing Social Security benefits at the earliest opportunity--age 62. Early evidence, however, suggests small changes in this pattern. Traditionally, some workers started benefits when they reached age 65. Recently, workers with full retirement ages after they turned 65 waited until those ages to start benefits. Also, following the elimination of the earnings test, some indications are emerging of increased workforce participation among people at or above full retirement age. GAO's analysis indicates that retiree health insurance and pension plans are strongly associated with when workers retire. After controlling for other influences such as income, GAO found that those with retiree health insurance were substantially more likely to retire before the Medicare eligibility age of 65 than those without. GAO also found that men with defined benefit plans were more likely to retire early (before age 62) than those without, and men and women with defined contribution plans were less likely to do so.