Is the Adjustment of Social Security Benefits Actuarially Fair, and If So, for Whom?

Disparities in Social Security claim ages have risen since the early 1990s. With high earners increasingly likely to delay claiming, and also living longer on average than lower earners, late claimants may differ in critical ways from early claimants. Using Social Security Administration data and focusing on men, we find that late claimants have lower mortality than those who claim at age 62, so late claimants are adversely selected. As a result of selective claiming combined with improvements in actuarial adjustments, the return to delaying claiming has become systematically positive for those who actually delay, but not for those who claim early. We further find that selective claiming increases benefits by more for those with higher lifetime earnings because their return to delay exceeds actuarially fair amounts by larger margins. Lastly, we find that selective claiming has a modest effect on total payouts, but a more consequential effect on inequality in lifetime benefit payouts. In the aggregate, the increase in Trust Fund payouts as a result of adverse selection in claiming was 0.5% for the most recent retiring cohorts. Yet, lifetime benefit payouts are 1.9% higher for those in the highest quartile of lifetime earnings as a result of claim-age differences, compared to what payouts would be if they had the same claim ages as those in the lowest quartile, and this contributes 2.8% to the difference in expected lifetime benefits between the highest and lowest quartiles.