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Is the Adjustment of Social Security Benefits Actuarially Fair, and If So, for Whom?

Author

Listed:
  • Irena Dushi

    (U.S. Social Security Administration)

  • Leora Friedberg

    (University of Virginia)

  • Anthony Webb

    (New School for Social Research)

Abstract
Disparities in Social Security claim ages have risen since the early 1990s. With high earners increasingly likely to delay claiming, and also living longer on average than lower earners, late claimants may differ in critical ways from early claimants. Using Social Security Administration data and focusing on men, we find that late claimants have lower mortality than those who claim at age 62, so late claimants are adversely selected. As a result of selective claiming combined with improvements in actuarial adjustments, the return to delaying claiming has become systematically positive for those who actually delay, but not for those who claim early. We further find that selective claiming increases benefits by more for those with higher lifetime earnings because their return to delay exceeds actuarially fair amounts by larger margins. Lastly, we find that selective claiming has a modest effect on total payouts, but a more consequential effect on inequality in lifetime benefit payouts. In the aggregate, the increase in Trust Fund payouts as a result of adverse selection in claiming was 0.5% for the most recent retiring cohorts. Yet, lifetime benefit payouts are 1.9% higher for those in the highest quartile of lifetime earnings as a result of claim-age differences, compared to what payouts would be if they had the same claim ages as those in the lowest quartile, and this contributes 2.8% to the difference in expected lifetime benefits between the highest and lowest quartiles.

Suggested Citation

  • Irena Dushi & Leora Friedberg & Anthony Webb, 2021. "Is the Adjustment of Social Security Benefits Actuarially Fair, and If So, for Whom?," Working Papers wp421, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp421
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    References listed on IDEAS

    as
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    Cited by:

    1. John Bailey Jones & Yue Li, 2023. "Social Security Reform with Heterogeneous Mortality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 320-344, April.
    2. Leora Friedberg & Elliott Isaac, 2023. "Marriage in Old Age: What Can We Learn About Policy Impacts on Same-Sex Couples?," National Tax Journal, University of Chicago Press, vol. 76(3), pages 679-706.
    3. Yu, Zhixiu, 2024. "Why are older men working more? The role of social security," Journal of Public Economics, Elsevier, vol. 231(C).
    4. Courtney Coile, 2023. "Changing Retirement Incentives and Retirement in the US," NBER Chapters, in: Social Security Programs and Retirement around the World: The Effects of Reforms on Retirement Behavior, National Bureau of Economic Research, Inc.
    5. John Bailey Jones & Yue Li, 2023. "Social Security Reform with Heterogeneous Mortality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 320-344, April.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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