This paper investigates whether exchanging the Social Security delayed retirement credit, currently paid as an increase in lifetime annuity benefits, for a lump sum would induce later claiming and additional work. We show that people would voluntarily claim about half a year later if the lump sum were paid for claiming any time after the Early Retirement Age, and about two-thirds of a year later if the lump sum were paid only for those claiming after their Full Retirement Age. Overall, people will work one-third to one-half of the additional months, compared to the status quo. Those who would currently claim at the youngest ages are likely to be most responsive to the offer of a lump sum benefit
Will They Take the Money and Work? An Empirical Analysis of People’s Willingness to Delay Claiming Social Security Benefits for a Lump Sum
Published: 2014
Abstract
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Key Findings
- Our research asks whether replacing Social Security’s annuitized delayed retirement credit with a lump sum payment would potentially induce people to claim benefits later and work longer.
- Using an experimental module in the American Life Panel, we show that:
- people would voluntarily work longer if they were offered an actuarially fair lump sum instead of the delayed retirement credit under the current system, and
- people would voluntarily work between one-quarter and half of the additional time until claiming.
- The claiming delay would average half a year if the lump sum were paid for claiming later than age 62, and about two-thirds of a year if the lump sum were paid only for claiming after the Full Retirement Age.
- Individuals who respond most to the lump sum incentives are those who would have claimed earliest, under the current rules.