Optimal social security timing

TL;DR

This paper develops mathematical models to determine the optimal age for claiming social security benefits, showing that delaying until age 70 is generally optimal unless market returns and cost-of-living adjustments favor earlier claiming.

Contribution

It introduces a formal model incorporating market returns, benefit increases, penalties, and adjustments to identify optimal claiming age, adaptable to individual circumstances.

Findings

Delaying benefits until age 70 is usually optimal.

Higher market returns tend to lower the optimal claiming age.

Cost-of-living adjustments influence the optimal timing.

Abstract

The optimal age that a retiree claims social security retirement benefits is in general a complicated function of many factors. However, if the beneficiary's finances and health are not the constraining factors, it is possible to formally derive mathematical models that maximize a well-defined measure of his total benefits. A model that takes into account various factors such as the increase in the benefits for delayed claims and the penalties for early retirement, the advantages of investing some of the benefits in the financial markets, and the effects of cost-of-living adjustments shows that not waiting until age 70 is almost always the better option. The optimal claiming age that maximizes the total benefits, however, depends on the expected market returns and the rate of cost-of-living adjustments, with the higher market rates in general pushing the optimal age lower. The models presented here can be easily tailored to address the particular circumstances and goals of any individual.