Optimal Claiming of Age-Dependent Retirement Benefits
30 Pages Posted: 1 Jun 2021 Last revised: 6 Dec 2022
Date Written: March 4, 2021
We develop a framework to compute the optimal age to claim age-dependent benefits, based on a lifecycle model which incorporates mortality, consumption, savings, and investment decisions. We apply the model to Social Security, where optimal claiming ages depends on an individual’s wealth relative to the primary insurance amount (PIA). If an individual’s wealth to PIA ratio exceeds a certain threshold, it is optimal to defer Social Security for at least a year. The optimal threshold depends on mortality assumptions, an individual’s utility preferences, and capital market assumptions. Using the PIA level of $2,000 in 2020, individuals should defer Social Security if their wealth is above $20,000 for men and $18,000 for women at age 62, and above $64,000 for men and $50,000 for women at age 69. Below these threshold levels, individuals should optimally claim Social Security to raise current consumption.
Keywords: Social Security, optimization, lifecycle models
JEL Classification: D14
Suggested Citation: Suggested Citation