Financial Services Review | 2010
Authors:
DOI: 10.61190/fsr.v19i4.4985
Journal: Financial Services Review
Year: 2010
Publisher: Academy of Financial Services
Document Type: Article
Open Access: All Open Access; Gold Open Access; Green Open Access
Cited by: 4
The point that only live participants may initiate or receive Social Security benefits is typically overlooked. Thus, a postponement of benefits at any eligible retirement age may be likened to participation in a game of chance in which the participant is subject to a variant form of gambler's ruin at death. The typical assumption, therefore, that a participant should automatically opt for a post-ponement if the present value of the resulting benefits, discounted to breakeven age, higher than the present value of the opportunity costs, carries with it the implication of risk neutrality in relation to the consequence of dying before reaching breakeven death age. While this implication of risk neutrality is sometimes correct, it is more likely not. In marked contrast to conclusions reached in previous studies, this paper shows that a single Social Security participant, who is risk averse as regards the chances and contingent consequences of dying before reaching breakeven death age, would be well advised to initiate benefits at the earliest age at which he or she would not be subject to earned income tax penalties. © 2010 Academy of Financial Services. All rights reserved.
Retirement annuities; Social Security; Social Security benefit initiation; Social Security benefit optimization; Social Security benefit postponement