Will They Take the Money and Work? An Empirical Analysis of People’s Willingness to Delay Claiming Social Security Benefits for a Lump Sum
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
- 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.
Maurer, Raimond, Olivia S. Mitchell, Ralph Rogalla, and Tatjana Schimetschek. 2014. "Will They Take the Money and Work? An Empirical Analysis of People’s Willingness to Delay Claiming Social Security Benefits for a Lump Sum." University of Michigan Retirement Research Center (MRRC) Working Paper, WP 2014-308. Ann Arbor, MI. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp308.pdf
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Paper IDWP 2014-308