Valuing the Longevity Insurance Acquired by Delayed Claiming of Social Security

23 Pages Posted: 24 Nov 2011

See all articles by Anthony Webb

Anthony Webb

Boston College - Center for Retirement Research

Wei Sun

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

Date Written: December 2011

Abstract

Individuals can claim Social Security at any age from 62 to 70, although most claim at 62. 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 because of delay. Using numerical optimization techniques, we illustrate that the optimal claim age is between 67 and 70. We calculate that the amount by which benefits payable at suboptimal 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

Webb, Anthony and Sun, Wei, Valuing the Longevity Insurance Acquired by Delayed Claiming of Social Security (December 2011). Journal of Risk and Insurance, Vol. 78, Issue 4, pp. 907-930, 2011. Available at SSRN: https://ssrn.com/abstract=1964111 or http://dx.doi.org/10.1111/j.1539-6975.2010.01400.x

Anthony Webb

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

Wei Sun

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

59 Zhongguancun Street
Beijing, Beijing 100872
China

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