Selecting a Social Security Age to Balance Consumption and Risk

27 Pages Posted: 5 Jun 2019

See all articles by Barry Cobb

Barry Cobb

affiliation not provided to SSRN

Jeffrey Smith

Virginia Military Institute

Date Written: May 17, 2019

Abstract

This paper uses Monte Carlo simulation to determine the maximum consumption given retirement at age 62, initial wealth, risk tolerance, and Social Security take decision. Coile et al. (2002) argue for a delay, because the payment increases 7% for each year. Focusing on maximizing the expected present value of benefits may be misguided. This paper shows that, conditional on retirement at age 62, initial consumption is always maximized by taking Social Security no later than age 63; it also results in the highest simulated ending wealth at death, and the lowest amount of simulated time living on just Social Security.

Keywords: Social Security; Consumption; Monte Carlo Simulation

JEL Classification: G1

Suggested Citation

Cobb, Barry and Smith, Jeffrey, Selecting a Social Security Age to Balance Consumption and Risk (May 17, 2019). Available at SSRN: https://ssrn.com/abstract=3389831 or http://dx.doi.org/10.2139/ssrn.3389831

Barry Cobb

affiliation not provided to SSRN ( email )

Jeffrey Smith (Contact Author)

Virginia Military Institute ( email )

Department of Economics and Business
Scott Shipp Hall
Lexington, VA 24450
United States

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