Selecting a Social Security Age to Balance Consumption and Risk

Abstract

This paper uses Monte Carlo simulation to determine the maximum consumption given retirement at age 62, initial wealth, risk tolerance, and Social Security take decision. Coile et al. (2002) argue for a delay, because the payment increases 7% for each year. Focusing on maximizing the expected present value of benefits may be misguided. This paper shows that, conditional on retirement at age 62, initial consumption is always maximized by taking Social Security no later than age 63; it also results in the highest simulated ending wealth at death, and the lowest amount of simulated time living on just Social Security.