Optimal Claiming of Social Security Benefits

Using a life-cycle framework, we compute the optimal age to claim Social Security benefits. If the ratio of a worker’s wealth to their primary insurance amount (PIA)—the monthly benefit payable at their full retirement age—exceeds a certain threshold, they should defer Social Security for at least a year or claim immediately. The optimal threshold depends on mortality assumptions and individual preferences, but is less sensitive to capital market assumptions. The threshold wealth to PIA ratio increases from 5.5 for men and 5.2 for women at age 62, to 11.1 for men and 10.4 for women at age 69. For example, a man with a PIA of $2,000 should delay past age 69 unless his wealth is less than $22,200, illustrating that all except those with low levels of wealth should delay claiming. Those with wealth below these levels should claim, because maintaining their consumption requires immediate Social Security payments.