Working Paper: NBER ID: w17866
Authors: John B. Shoven; Sita Nataraj Slavov
Abstract: Social Security benefits may be commenced at any time between age 62 and age 70. As individuals who claim later can, on average, expect to receive benefits for a shorter period, an actuarial adjustment is made to the monthly benefit amount to reflect the age at which benefits are claimed. We investigate the actuarial fairness of this adjustment. Our simulations suggest that delaying is actuarially advantageous for a large subset of people, particularly for real interest rates of 3.5 percent or below. The gains from delaying are greater at lower interest rates, for married couples relative to singles, for single women relative to single men, and for two-earner couples relative to one-earner couples. In a two-earner couple, the gains from deferring the primary earner's benefit are greater than the gains from deferring the secondary earner's benefit. We then use panel data from the Health and Retirement Study to investigate whether individuals' actual claiming behavior appears to be influenced by the degree of actuarial advantage to delaying. We find no evidence of a consistent relationship between claiming behavior and factors that influence the actuarial advantage of delay, including gender and marital status, interest rates, subjective discount rates, or subjective assessments of life expectancy.
Keywords: Social Security; Retirement Planning; Actuarial Fairness
JEL Codes: D14; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| delaying social security benefits (H55) | actuarial advantage (G22) |
| lower real interest rates (E43) | actuarial advantage of delaying benefits (J26) |
| married couples (J12) | benefit from delaying benefits (J32) |
| single women (J16) | gain from delaying benefits (J32) |
| delaying primary earner's benefit (J26) | exceed gains from delaying secondary earner's benefit (H55) |
| average life expectancy (J17) | delay benefits to age 70 (J26) |
| labor force status (J21) | likelihood to delay claims (C41) |
| education level (I24) | likelihood to delay claims (C41) |