Certain Groups, Though, Should Think Twice About Waiting

Getting the most out of Social Security comes down to a terrible, generally unanswerable question: When are you going to die? If you’re going to live to 101, delaying Social Security is pretty much a no-brainer. If you’re destined to die at 71, you might as well take the money as soon as possible.

The average U.S. life expectancy isn't much help to retirees pondering their demise. One reason is rising inequality: Even as the well-off are living ever longer lives, the latest data show the average American’s health is getting worse.

A key variable is education, according to another study released this month by the Center for Retirement Research. Researchers Geoffrey Sanzenbacher and Jorge Ramos-Mercado calculated the best times for various demographic groups to take Social Security if they want to maximize the expected present value of their benefit stream.

“More educated workers have more incentive to delay claiming than less educated workers, and non-blacks have more incentive to do so than blacks,” they write. Black and white men without college degrees tend to get the most benefits by claiming before the full retirement age, the authors find—though they’re careful to say that their calculations shouldn’t be taken as advice.

There Are Usually No Simple Answers

There are lots of reasons why someone might want to claim later, or earlier, even if their demographic profile suggests it isn’t the ideal strategy.

“Any one of us is going to die just once,” Boston University economist Laurence Kotlikoff said in an interview. Unlike an insurance company or a government program, “we’re not going to be able to average over lots of outcomes. We have to be mindful of the worse-case scenario.”

The worst-case scenario—at least when it comes to our finances—is the expensive prospect of living to age 100 or beyond. A healthy retiree might want to insure against that risk by delaying Social Security and boosting their monthly check for the rest of their lives, even if other factors suggest they’re likelier to die by their 80s.

Adding to the confusion, there are incentives to stop working and retire earlier, thanks to taxes and government rules regarding benefit programs. In a National Bureau of Economic Research study issued last month, Kotlikoff and three other researchers calculated how older Americans are affected by federal and state taxes, Medicare and Social Security rules, and eligibility for Medicaid, food stamps, and other benefit programs. They found many seniors face a serious disincentive to work in their 60s and 70s because much of the money they earn can end up being lost to higher taxes or reduced benefits. Social Security’s complicated earnings test is a “particularly significant” deterrent to working, they find.