(UM06-09) - Probabilistic Thinking and Early Social Security Claiming
Robert J. Willis and Adeline Delavande

For most people, waiting until 65 to claim Social Security is financially advantageous. Yet, the majority claim early, at age 62. Another important financial decision at retirement is whether or not to annuitize retirement wealth, such as would be accumulated in Social Security personal retirement accounts which are now under consideration as part of Social Security reform. Perceived mortality risk, or how long one expects to live, can influence the decision about when to claim Social Security benefits and whether or not to annuitize. Uncertainty about mortality risk and low competence of probabilistic thinking, may lead people to misperceive the benefits of delayed claiming. This project will estimate a utility-based measure of change in Social Security benefits when individuals have subjective uncertainty about their mortality risk. This measure consists of evaluating the increase of wealth that would keep lifetime utility constant following a decrease in monthly benefits. Along with other variables such as health, wealth and ability in probabilistic thinking, it is expected that this measure will play a central role in claiming decisions. Findings from this study may be especially relevant for the development of educational materials to help people make wise retirement decisions.

Conference Paper:

• Probabilistic Thinking and Early Social Security Claiming


Working Paper:

• Probabilistic Thinking and Early Social Security Claiming