How do subjective mortality beliefs affect the value of social security and the optimal claiming ages?

TitleHow do subjective mortality beliefs affect the value of social security and the optimal claiming ages?
Publication TypeJournal Article
Year of Publication2023
AuthorsDai, T, Sun, W, Webb, A
JournalInternational Studies of Economics
ISSN Number28313224
KeywordsAnnuity, Life Expectancy, Social Security, subjective mortality beliefs, variance of age of death
Abstract

Households that postpone claiming Social Security benefits are, in effect, making additional purchases of the Social Security annuity and acquiring valuable longevity insurance. This paper investigates the impact of plausible variations of subjective mortality beliefs on the value of delayed claiming and the optimal claiming ages of retired workers. Using the Health and Retirement Study data, we show that older individuals could, on average, predict their life expectancy correctly; however, the average variance of age of death calculated from subjective mortality tables is 6.2%–14.4% lower than that from cohort life tables. Using numerical optimization techniques, we further show that, theoretically, older households place a lower value on delaying claiming when they have greater confidence in their ability to forecast their age of death. But the magnitude of this effect is not large enough to change their optimal claiming ages, unless they hold extreme subjective mortality beliefs. As a result, we conclude that subjective mortality beliefs alone cannot explain the prevalence of early claiming behaviors. © 2023 The Authors. International Studies of Economics published by John Wiley & Sons Australia, Ltd on behalf of Shanghai University of Finance and Economics.

DOI10.1002/ise3.69
Citation Key13613