Deciding When To Initiate Social Security Benefits

Abstract

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">People nearing retirement face a well-known decision: When should to begin taking social security benefits? The answer may not seem obvious since there are key trade-offs involved. The retiree can choose low benefits for a longer period of time, or high benefits for a shorter period of time, or something in between.<span style="mso-spacerun: yes;">  </span>The optimal initiation date that maximizes social security wealth is a quantitative question and it depends on the life expectancy of the person and on the real rate of return they expect to earn on their investments, among other things. We attempt to provide some answers to this practical and important question.<span style="mso-spacerun: yes;">  </span>Our focus throughout is on relatively high-wealth individuals who will receive the maximum social security benefits.<span style="mso-spacerun: yes;">  </span>We show how the government’s social security benefit calculator can be very misleading. We also include how the decision may be different for a married couple.<span style="mso-spacerun: yes;">  </span>We conclude with the following rough guideline.<span style="mso-spacerun: yes;">  </span>If you expect to make a good return on your investments, you should take the benefits early (i.e. at age 62).<span style="mso-spacerun: yes;">  </span>If you expect to make modest investment returns and you expect to live a long time, you should take the benefits later, (i.e. at age 70).</span></span></p>

What Motivates Social Security Claiming Age Intentions? Testing Behaviorally Informed Interventions Alongside Individual Differences

“…The use of behaviorally informed interventions to nudge individuals toward more optimal decisions has been widely tested in a variety of financial (Madrian et al 2017), health (Loewenstein, Asch, and Volpp 2013), and environmental (Allcott and Mullainathan 2010) domains (e.g., Halpern 2015; Johnson et al 2012; Thaler and Sunstein 2008). Previous studies on SSA claiming have focused on financial literacy and education (Lusardi and Mitchell 2011) or on information disclosure (Liebman and Luttmer 2015; Martin and Kintzel 2016) as a path to affect claiming age decisions. Distinct from informational approaches, behavioral interventions for claiming decisions have thus far focused on framing effects (Brown, Kapteyn, and Mitchell 2016; Fetherstonhaugh and Ross 1999; Knoll 2011) or on shifting attention toward future benefits (Knoll et al 2015).…”