The Effects of Subjective Survival on Retirement and Social Security Claiming

22 Pages Posted: 17 Jan 2008

See all articles by Michael D. Hurd

Michael D. Hurd

RAND Corporation; State University of New York at Stony Brook - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

James P. Smith

RAND Corporation; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2002

Abstract

This research examines the relationship between mortality risk and retirement, and mortality risk and the propensity to take early and reduced Social Security benefits. The main theory for understanding saving behavior is the life-cycle model (LCH). The LCH, however, can be extended to find the optimal retirement age, and can be used to make predictions about the desire to annuitize or equivalently, the desire to delay claiming Social Security benefits. According to the LCH, individuals who expect to be exceptionally long-lived will retire at a later age than individuals who expect to die early because they will need greater wealth to finance more years of retirement. According to almost any model of intertemporal maximization, those who expect to be long lived will see the increase in Social Security benefits that result from retiring at 65 rather than at 62 as being financially advantageous and will, therefore, delay application for benefits until the age of 65. In principle the decision to retire and the decision to take early and reduced benefits are related decisions but not necessarily the same decision. Therefore this study examines both decisions.

Suggested Citation

Hurd, Michael D. and Smith, James P., The Effects of Subjective Survival on Retirement and Social Security Claiming (May 1, 2002). Michigan Retirement Research Center Research Paper No. WP 2002-021, Available at SSRN: https://ssrn.com/abstract=1084593 or http://dx.doi.org/10.2139/ssrn.1084593

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James P. Smith

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