How Much Do Households Really Lose by Claiming Social Security at Age 62?

32 Pages Posted: 22 May 2009

See all articles by Wei Sun

Wei Sun

Renmin University of China - Hanqing Advanced Institute of Economics and Finance and School of Finance

Anthony Webb

Boston College - Center for Retirement Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 2009

Abstract

Individuals can claim Social Security at any age from 62 to 70 although most claim at 62 or soon thereafter. Those who delay claiming receive increases that are approximately actuarially fair. We show that expected present value calculations substantially understate both the optimal claim age and the losses resulting from early claiming because they ignore the value of the additional longevity insurance acquired as a result of delay. Using numerical optimization techniques, we illustrate that for plausible preference parameters, the optimal age for non-liquidity constrained single individuals and married men to claim benefit is between 67 and 70. We calculate that Social Security Equivalent Income, the amount by which benefits payable at sub-optimal ages must be increased so that a household is indifferent between claiming at those ages and the optimal combination of ages, can be as high as 19.0 percent.

Suggested Citation

Sun, Wei and Webb, Anthony, How Much Do Households Really Lose by Claiming Social Security at Age 62? (March 2009). Available at SSRN: https://ssrn.com/abstract=1408729 or http://dx.doi.org/10.2139/ssrn.1408729

Wei Sun (Contact Author)

Renmin University of China - Hanqing Advanced Institute of Economics and Finance and School of Finance ( email )

59 Zhongguancun Street
Beijing, Beijing 100872
China

Anthony Webb

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

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