The Social Security retirement decision: Maximizing expected discounted worth
Abstract
Determining when to apply for Social Security benefits (SSB) is a decision that must be made by all United States citizens approaching the age of eligibility, currently set at age 62. What has not been currently addressed is a widely accessible, complete, clearly defined set of rules detailing the conditions and calculations involved in determining an individual's monthly benefit. What is also lacking is a tool available to the public that estimates the optimal age to apply for SSB, tailoring these results to the individual. We provide four contributions. First, we provide mathematical and flowchart representations of the Social Security Retirement rules and calculations for determining monthly payments for both the Single-Person and Two-Person problems. We then provide software, written in Python, for optimizing when an individual or couple should apply for SSB. The software is based on user inputted parameters, where the objective is to maximize the expected net present worth of the decision. Both the Single-Person and Two-Person problems are addressed. This software can also be applied to similar retirement programs with minimal adjustment. Third, we provide two theorems governing the behavior of the optimal starting-age solution with respect to rate of return. Lastly, we provide an analysis of several examples of single-person and two-person scenarios.
Degree
M.S.I.E.
Advisors
Schmeiser, Purdue University.
Subject Area
Finance|Industrial engineering|Operations research
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