Calculating Expected Social Security Benefits by Race, Education, and Claiming Age

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The option to claim Social Security before the full retirement age (FRA) has been around for over 50 years. But claiming benefits early has an inherent trade-off: more years of income are received in exchange for an actuarially reduced monthly benefit. The actuarial reduction is designed to be “fair” for the average worker in that, regardless of the age at which a person claims, he can expect to receive the same expected present value (EPV) of his lifetime benefits. Aside from a period of high interest rates in the 1980s, this equality has roughly held for the average worker since the inception of the actuarial reduction. But the key word here is average. Workers who live less long than the average might maximize the EPV of benefits by claiming early, while those who live longer than average might benefit more from delay. This paper analyzes this issue by calculating the EPV of Social Security benefits by race, education, and gender, all three of which are correlates of both mortality and earnings.