Discount Rate Specification and the Social Security Claiming Decision

Choosing the claiming age that maximizes the expected present value of lifetime Social Security retirement benefits requires a survival function to account for an individual’s prospective longevity along with the specification of a rate by which to discount the future benefit payments for each claiming age. This article evaluates optimal claiming ages for prospective beneficiaries across a range of 81 real discount rate options (specified in increments of one-tenth of 1 percent) from 0 percent to 8 percent, considering the survival functions for men and women born in 1952. It examines the implications of choosing a given rate as well as the sensitivity of the optimal claiming age to a specific rate choice.