Social Security Claiming Timing and Older Adults’ Financial Wellbeing

• In Event: Growing Older, Growing Needs: Economic Insecurity, Caregiving, and Food Insecurity in Later Life

Abstract

As the U.S. population ages, ensuring the financial security of older adults has become a pressing policy challenge. In 2024, over four million Americans turned 65—an unprecedented milestone. With many lacking sufficient private savings, Social Security plays a crucial role in providing retirement income. Yet, rising longevity and a shrinking tax base raise concerns about both the program’s solvency and whether benefit structures and claiming behaviors support optimal financial outcomes. At the same time, while much policy discourse has focused on program solvency and replacement rates, less is known about how the timing of benefit claims affects broader dimensions of household wealth and financial resilience during retirement.

We fill this gap in literature by examining the consequences of sub-optimal Social Security claiming for retirees' financial well-being. In doing so, we introduce a novel measure—the Social Security Optimization Failure (OF) Index—to quantify the extent to which individuals deviate from their optimal initial claiming age. The index is constructed in three stages: (1) calculating the claiming age that would maximize lifetime Social Security wealth based on each individual’s earnings record, life expectancy, and discount rate; and (2) measuring the temporal distance between actual and optimal claiming age. Using linked data from the Health and Retirement Study (HRS) 1992-2020, Social Security Administration records, and monthly working trajectory data, we estimate the association between optimization failure and multiple indicators of post-claiming financial well-being: liquid assets, private pension wealth, real estate wealth, and total household wealth. We also compare the estimation outcomes separately for individuals who claim Social Security sub-optimally early with those claiming sub-optimally late.

Findings reveal that individuals who claim Social Security benefits at sub-optimal times tend to have significantly lower total and real estate wealth after retirement. Notably, we find no significant association between sub-optimal claiming and private pension wealth. Disaggregating the results by subgroups of sub-optimal early and late claimers and decomposing financial outcomes into sub-categories, we find that the adverse financial effects are concentrated among early-claimers. This pattern supports a theoretical framework that financial constraints and limited foresight drive both sub-optimal claiming and insufficient accumulation of other forms of wealth (hypothesis 1)—outweighing a potential substitutability between different forms of retirement wealth (hypothesis 2).

This study provides new empirical evidence that sub-optimal Social Security claiming—particularly early claiming—has lasting negative consequences on older individuals’ lifetime Social Security wealth accumulation and financial well-being. These results underscore the importance of enhancing policies and support systems that can guide older adults make informed claiming decisions. Policy responses could include expanding access to financial literacy programs targeted at pre-retirees and integrating decision-support tools into retirement planning services (i.e., enhancing the optimal claiming guidance feature—with improved calculation tools that show not only the expected monthly benefits but also the lifetime Social Security wealth associated with each initial claiming timing). Reducing Optimization Failure in Social Security claiming has the potential to enhance retirement security for a growing population of older Americans, especially for those with limited retirement assets.

Author

• Zeewan Lee, National University of Singapore
  Presenting Author