The Decision to Delay Social Security Benefits: Theory and Evidence

April 30, 2012

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.  Researchers with the National Bureau of Economic Research investigate the actuarial fairness of this adjustment.

  • The researchers' 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.

The researchers then used 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.  They 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.

Source: John B. Shoven and Sita Nataraj Slavov, "The Decision to Delay Social Security Benefits: Theory and Evidence," National Bureau of Economic Research, February 2012.

For text:

http://www.nber.org/papers/w17866

 

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