Public Pension Design and Household Retirement Decisions: A Comparison of the United States and Germany

Abstract

Social Security provides retirement benefits to age-eligible workers and their spouses. Benefits are permanently increased if initial receipt is delayed. For benefits paid to spouses, these incentives reflect a complex interaction of the worker’s and spouse’s earnings histories, benefit claiming decisions, and age difference. We demonstrate that the benefit increment from delaying initial receipt of spousal and survivor benefits is substantial for some households. Past studies find that workers respond to potential increments in their own benefit by delaying labor force exit. Using a nationally representative panel, we investigate whether an additional dollar in expected lifetime benefits paid to the worker directly is treated the same as an additional dollar paid to the worker’s spouse from spouse and survivor benefits. We find minimal evidence that workers or their spouses change retirement behavior in a way that is theoretically consistent with spouse and survivor benefit claiming incentives. The lack of responsiveness suggests that incentives to delay claiming for benefits other than the worker’s own are not salient in the worker’s decision-making. This may reflect the complexity of benefit rules or different preferences concerning benefits paid to others. A parallel analysis using German data, where rules surrounding survivor benefits are simpler, finds that workers respond in a theoretically consistent way, but small sample sizes prevent conclusive results. Our findings suggest models estimating the policy impact of reducing spousal and survivor benefits on female labor supply are likely overstated, and that a greater understanding of survivor benefits may lead to better claiming decisions for couples.