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Valuing the Longevity Insurance Acquired by Delayed Claiming of Social
Security
By Wei Sun and Anthony Webb
Discussant:
W. Jean Kwon, Ph.D., CPCUSchool of Risk Management
St. John’s [email protected]
http://facpub.stjohns.edu/~kwonw/
© W. Jean Kwon – 1
Research Contribution
• Treatment of delaying claiming Social Security income as an option to purchase additional annuity– To generate an optimal return, married couples, for example, may
retire between 67 and 70 years of age
• Calculation of the optimal age spread of the couple based on– Population age mortality risk– The level of risk aversion, and– Retirement time preference
© W. Jean Kwon – 2
Research Contribution
• Calculation of Social Security Equivalent Income– To estimate the required increase in benefit from the delay to be
equally well off as the case of retiring at an optimal age
• Socio-economic factors (i.e., race-education) have little effect on optimal claiming ages.
• An effective tool for people, especially those near retirement, to fine tune their retirement plan
© W. Jean Kwon – 3
Suggestion for Research Extension
• Modification of initial wealth assumption– The authors assume that people retire with wealth at EPV (Social
Security income). However, they also find that less 50% of the retirees have sufficient financial assets to fund consumption.
– High-income retirees may subject to higher income tax rates than low-income retirees.
– Retirement income replacement ratios vary from 94% (at the $20,000 salary level) to about 78% (at the $60,000~90,000 level).*
– Possibly different decision-making (optional retirement age) matrix for the persons that are not fully funded
• Variation of λ– What if the surviving spouse’s consumption need equals the
deceased’s (λ = 1)?
© W. Jean Kwon – 42008 GSU/Aon RETIREE Project; A case of single-wage-earner-married couples
