The Decision to Delay Social Security Benefits: Theory and Evidence

John B. Shoven and Sita Slavov

No 17866, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D14 H55 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-age and nep-lab
Note: AG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as “Does It Pay to Delay Social Security?” (with John Shoven) Journal of Pension Economics and Finance, 13(2), April 2014, 121-144. (Earlier versions: NBER Working Paper no. 17866 and NBER Working Paper no. 18210)

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