Working Paper: NBER ID: w30675
Authors: David Altig; Laurence J. Kotlikoff; Victor Yifan Ye
Abstract: Americans are notoriously bad savers. Large numbers are reaching old age too poor to finance retirements that could last longer than they worked. This study uses the 2018 American Community Survey to impute retirement ages for 2019 Survey of Consumer Finance (SCF) respondents. Next, we run the SCF respondents through the Fiscal Analyzer (TFA) to measure the size and distribution of forgone lifetime Social Security benefits. TFA is a life-cycle, consumption-smoothing research tool that incorporates Social Security and all other major federal and state tax and benefit policies. The program can optimize lifetime Social Security choices. We find that virtually all American workers age 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70. Only 10.2 percent appear to do so. The median loss for this age group in the present value of household lifetime discretionary spending is $182,370. Optimizing would produce a 10.4 percent increase in typical workers’ lifetime spending. For one in four, the lifetime spending gain exceeds 17 percent. For one in ten, the gain exceeds 26 percent. Among the poorest fifth of 45 to 62 year-olds, the median lifetime spending increase is 15.9 percent, with one in four gaining more than 27.4 percent.
Keywords: Social Security; Retirement Planning; Lifetime Benefits
JEL Codes: H2; H5; H6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Age of claiming Social Security benefits (H55) | Lifetime discretionary spending (D15) |
| Delay claiming Social Security benefits until age 70 (H55) | Lifetime discretionary spending (D15) |
| Optimizing Social Security benefits (H55) | Lifetime discretionary spending (D15) |