Hi,
I am a retired casualty actuary, and I want to do some rough calculations in a math class environment on taking a Social Security benefit at age 67 versus age 70.
Is this a good mortality table to use, or do you have a better one? Actuarial Life Table
What about race? I understand Social Security does not want to do calculations by race, but shouldn’t an individual use a specific race table?
I understand that if a retired person at age 67 waits until age 70 to start collecting Social Security benefits, the age 67 benefit will increase 8% per year. Is that accurate? And is the 8% based on simple interest per year rather than compound?
Is there anything else in simple math that should be considered?
Note that no one person is likely to be “average.” A calculation like this is applicable for a mass of people, but not any specific individual.
“If every person were to do A, what is the effect, versus everyone choosing to be B?”
Disclaimer: not a pension or SS actuary, but a general average actuary opposed to using actuarial work to make individual decisions. It’s a start, but difficult (meaning, hard to pin down) adjustments need to be made that only the individual can do.
The sex gap is larger than the race gap. Also, use this:
What’s more to the point is your health status, not your race (especially not if you’re already age 67).
If you have kidney disease, diabetes, etc. – that’s poor.
If you’re still running marathons, that’s pretty good.
Etc.
[The Longevity Illustrator, being from the SOA, etc., tells its assumptions]
These are the Longevity Illustrator assumptions for mortality
The projections shown in the ALI are based on 2019 mortality tables used by the Social Security Administration in the annual Trustees’ Report that was released in the June 2022. There are separate rates for males and females.
Because mortality rates show a long-standing trend of improving, the ALI is based on the assumption they will continue to improve according to the MP-2021 rates published by the Society of Actuaries in the fall of 2021. These improvement rates are applied to the 2019 Social Security mortality tables to project mortality rates to future years.
Additional adjustments are made for health status ranging from 75% to 150% depending on age and for smoker status ranging from 69% to 233% depending on age. The combined adjustment factors range from 52% to 349%, depending age, health status and smoking statuses.
This longevity illustrator does not assume that the relatively high mortality rates of 2021 and 2022 caused by COVID-19 will continue into the future.
I have not checked SSA’s math, but the theory is that on average it doesn’t matter when a person takes their benefit… 62, 67, 70 or any point in between. (You may select any month from age 62 and age 70 subject to how exactly they treat your birthday month.)
In practice if you are healthier than average you should wait or less healthy than average then you should start early.
Race certainly impacts your personal health / longevity, but it’s such a sticky subject I would be wary of spending too much time on it. By the time you’re 61.5 and making a decision, a lot of race-related health issues will be known (diabetes, heart disease, obesity, sickle-cell anemia, family history of stroke, alcoholism, etc.) (Not that these don’t affect all races, but the prevalence varies by race.)
So when people are making the decision they should base it on the more specific health situations that they are in rather than the blunt table for everyone of their race. If you’re a Native American who is not an alcoholic, or an African American who does not have sickle-cell anemia or an Asian who is obese, then it doesn’t matter to your situation that those conditions are more or less common among people with your racial background.
Yes, any selection is supposed to be actuarially equivalent to another. Of course, that’s for the entire poopulation (I’m just going to leave that typo there because it makes me chuckle like a ten year old).
Indeed, you can select against the averages as twig suggests…
For me, personally, the retirement benefit from SS is longevity insurance. I will forgo the benefit early in retirement in order to have more later in retirement if I (or more importantly, my wife) should live that long.
For other people I know, they needed the money early in retirement for cash flow purposes, so it was more beneficial to them to claim benefits earlier.