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The Decision to Delay Social Security Benefits: Theory and Evidence

50 Pages Posted: 24 Feb 2012  

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Sita N. Slavov

American Enterprise Institute; Occidental College - Department of Economics

Date Written: February 2012

Abstract

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. We investigate the actuarial fairness of this adjustment. Our 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. We then use 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. We 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.

Suggested Citation

Shoven, John B. and Slavov, Sita N., The Decision to Delay Social Security Benefits: Theory and Evidence (February 2012). NBER Working Paper No. w17866. Available at SSRN: https://ssrn.com/abstract=2010398

John B. Shoven (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Stanford University - Department of Economics ( email )

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Stanford, CA 94305-6072
United States
650-326-5377 (Phone)
650-328-4163 (Fax)

Sita N. Slavov

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

HOME PAGE: http://www.aei.org/scholar/sita-nataraj-slavov/

Occidental College - Department of Economics ( email )

Los Angeles, CA 90041
United States

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