Optimal Claiming of Age-Dependent Retirement Benefits

The Journal of Retirement, Winter 2023, 10(3) 33-46 (DOI: 10.3905/jor.2022.1.117)

Posted: 1 Jun 2021 Last revised: 6 Dec 2022

See all articles by Steven Diamond

Steven Diamond

BlackRock AI Labs

Stephen Boyd

Stanford University - Department of Electrical Engineering

David Greenberg

affiliation not provided to SSRN

Mykel Kochenderfer

Stanford University

Andrew Ang

BlackRock, Inc

Date Written: March 4, 2021

Abstract

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

Diamond, Steven and Boyd, Stephen and Greenberg, David and Kochenderfer, Mykel and Ang, Andrew, Optimal Claiming of Age-Dependent Retirement Benefits (March 4, 2021). The Journal of Retirement, Winter 2023, 10(3) 33-46 (DOI: 10.3905/jor.2022.1.117), Available at SSRN: https://ssrn.com/abstract=3855696 or http://dx.doi.org/10.2139/ssrn.3855696

Steven Diamond (Contact Author)

BlackRock AI Labs ( email )

400 Howard Street
San Francisco, CA 94105
United States

Stephen Boyd

Stanford University - Department of Electrical Engineering ( email )

Stanford, CA 94305-6104
United States

David Greenberg

affiliation not provided to SSRN

Mykel Kochenderfer

Stanford University ( email )

Stanford, CA 94305-9025
United States

HOME PAGE: http://https://mykel.kochenderfer.com/

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

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