A life-cycle analysis of household’s financial incentives to delay claiming Social Security retirement benefits
Author: Raimond Maurer, Goethe University; Olivia S. Mitchell, Wharton School; Ralph Rogalla, St. John’s University; Tatjana Schimetschek, Goethe University
Title: A life-cycle analysis of household’s financial incentives to delay claiming Social Security retirement benefits
We employ a life-cycle model to study the Social Security Old-Age retirement benefit take-up decision from an individual’s financial perspective. We find that delaying is optimal for a wide range of preference and capital market settings if the retiree has sufficient liquid wealth to finance consumption during the delaying period. Furthermore, we show that the Social Security delayed retirement credit is advantageous compared to annuitization under the actuarial principle and current interest rate and mortality assumptions. Early benefit take-up can be explained by low time preference, above average mortality, and a bequest motive. In these cases, longer delays would optimally result if the delayed retirement credit were to be replaced with an actuarially fair lump sum payment.