Accounting for Social Security Claiming Behavior

The paper examines why most individuals claim Social Security benefits before the full retirement age. Early claiming results in a substantial reduction in pension income, yet many people claim as early as possible, age 62, or soon thereafter. Since delaying claiming is equivalent to purchasing additional annuity income, this behavior is consistent with the so-called annuity puzzle. We provide a quantitative analysis of claiming decisions (or equivalently, of the demand for the Social Security annuity). Our tool is a structural lifecycle model calibrated to match many important features of the data.