The Downside Risk of Postponing Social Security Benefits
Joseph Friedman and
Herbert Phillips ()
Additional contact information
Herbert Phillips: Department of Finance, Temple University
No 1008, DETU Working Papers from Department of Economics, Temple University
The point that only live participants may initiate or receive Social Security benefits is typically overlooked. Thus a postponement of benefits at any eligible retirement age may be likened to participation in a game of chance in which the participant is subject to a variant form of gambler's ruin at death. The typical assumption, therefore, that a participant should automatically opt for a postponement if the present value of the resulting benefits, discounted to breakeven age, higher than the present value of the opportunity costs, carries with it the implication of risk neutrality in relation to the consequence of dying before reaching breakeven death age. While this implication of risk neutrality is sometimes correct, it is more likely not. In marked contrast to conclusions reached in previous studies, this paper shows that a single Social Security participant, who is risk averse as regards the chances -- and contingent consequences -- of dying before reaching breakeven death age, would be well advised to initiate benefits at the earliest age at which he or she would not be subject to earned income tax penalties.
Keywords: Social Security; Social Security Benefit Initiation; Social Security Benefit Postponement; Social Security Benefit Optimization; Retirement Annuities. (search for similar items in EconPapers)
JEL-codes: D14 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age
References: View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://www.cla.temple.edu/RePEc/documents/detu_10_08.pdf First version, 2010 (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:tem:wpaper:1008
Access Statistics for this paper
More papers in DETU Working Papers from Department of Economics, Temple University Contact information at EDIRC.
Bibliographic data for series maintained by Dimitrios Diamantaras ().