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Why is there so much drama in when to apply for social security



No wonder there is such a wide range of differences in the optimal age to start receiving social security.

The seemingly insignificant difference in the way you ask questions leads to very different answers. If you depend on how long a person who is about to retire must live to make up for the loss of income caused by their failure to receive social security benefits at the age of 62, you can get an answer. The question is, if they start receiving benefits before reaching the maximum retirement age of 70, how much will they pay less each month.

Of course, these two ways of solving problems are just the opposite of the same coin. Therefore, if we are completely rational economic participants, as economists think, then no matter how the question is worded, our answer is identical.

But needless to say, we are not completely rational.

Welcome to the field of behavioral economics called “selection architecture”

;. It looks at the impact of the different frameworks of these choices on our choices.

Dan Ariely, a professor of psychology and behavioral economics at Duke University, is an economist who extensively studies the architecture of choice. He even argued that our decisions are usually made for us because the way we choose has a greater impact on our answers than the thought process we experienced when we presented them. (Click here to view one of Ariely’s TED talks on this topic.)

Therefore, although we believe that we are objectively analyzing the pros and cons of the choices given, in reality, it is only because of how these choices are structured that we are actually led unconsciously to one choice or another.

A few years ago, Jeffrey Brown (Dean of the Business School at the University of Illinois at Urbana-Champaign and Director of the National Economic Research Bureau’s Retirement Research Center) studied the impact of the choice structure on social security requirements decisions. , Arie Kapteyn (Professor of Economics, University of Southern California) and Olivia Mitchell (formerly held two professorships at the Wharton School of the University of Pennsylvania: Business Economics and Public Policy and Insurance and Risk Management).

To understand their findings, it is worth remembering that whenever you decide to start receiving benefits, the Social Security Administration (SSA) sets the social security benefits to be actuarially equivalent. If you receive unemployment benefits at the age of 62 in the first year of eligibility, you will get a longer payment period, but the interest rate will be lower. If you instead file a claim at the age of 70 (the age at which you must start receiving unemployment benefits), your monthly payment will be correspondingly higher.

The end result is that if your survival time is as long as the life expectancy shown in the SSA actuarial table, the inflation-adjusted lifetime benefit value will be about the same no matter when you start receiving benefits. This means that the benefits of slicing and slicing the numbers are limited.

In their research, professors surveyed thousands of retirees who were about to retire to understand the age at which they intended to receive social security payments, and slightly changed the way they asked questions. These subtle differences have had a huge impact.

Consider the two ways in which professors ask survey questions:

• The first is to report if the respondent chooses to start receiving pensions at the age of 62, what is the monthly pension. It then reported the impact of the decision to postpone the request, indicating how many years he would need to live before receiving the same life. He received social security benefits without delay.

— Specifically, the first way to ask questions is: “If you delay filing a claim, your monthly income will increase. For example, if you request insurance money at the age of 63 (one year later), you The insurance premium will increase by $103 per month…. However, if you delay your insurance premium by one year, you will lose the $18,588 you will receive between the ages of 62 and 62. 63. According to our calculations, you will need At least another 15 years to recover the USD 18,588 confiscated after waiting for one year.” [These dollar amounts were current at the time the Survey was conducted.]

• The second report simply reports the monthly benefits that the respondent can receive at each possible age. It does not set the framework for these payment amounts to be more or less related to the age of another claim, but only the original amount itself.

— Specifically, the second way to ask questions is: “Assuming you receive unemployment benefits at the age of 66. In this case, you will receive $2,065 per month…if you are 65 years old one year in advance When you receive unemployment benefits, you will receive $1,927 a month. If you file a claim after one year (67 years old), you will receive $2,230 in insurance money each month.”

Note that compared to the second method, the first method of asking questions considers decision-making as a risky bet on life expectancy. Since we don’t like to risk betting when we retire, it’s no surprise that asking questions in this way will make people retire early. And this is what the professors discovered: the first choice of the respondents chose an earlier age, that is, an average of 15 months in advance. Statistically speaking, this is very important.

In addition, please note that these are just two ways the professor seems to have changed slightly in the investigation. Each of the other eight changes they analyzed also affected the average age of the respondents.

There is a lot of irony here. Think of all the ink that has been lost over the years in trying to provide a correct answer to when to start getting social security, only to find that the answer is pre-determined by seemingly benign differences in the way the questions are worded.

The general meaning of this research is the need to be aware of the potential impact of how the problem constitutes. Especially for when to apply for social security, the meaning is to study the problem from many different angles. A good starting point is to ask the professor 10 different questions in the survey.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings track investment newsletters, which pay a fixed fee for review. You can contact Hulbert at mark@hulbertratings.com..


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