Optimal social security claiming behavior under Lump Sum incentives: theory and evidence

  • Many Americans claim Social Security benefits early, though this leaves them with lower benefits throughout retirement. We build a lifecycle model that closely tracks claiming patterns under current rules, and we use it to predict claiming delays if, by delaying benefits, people received a lump sum instead of an annuity. We predict that current early claimers would defer claiming by a year given actuarially fair lump sums, and the predictions conform with respondents’ answers to a strategic survey about the lump sum. In other words, such a reform could provide an avenue for encouraging delayed retirement without benefit cuts or tax increases. Moreover, many people would still defer claiming even for smaller lump sums.

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Author:Raimond MaurerGND, Olivia S. MitchellORCiDGND, Ralph Rogalla, Tatjana Schimetschek
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 629
Series (Serial Number):CFS working paper series (629)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Year of Completion:2019
Year of first Publication:2019
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2019/10/28
Tag:Retirement; Social Security; annuity; delayed claiming; early retirement; pension
Issue:May 4, 2019
Page Number:39
©2019 Maurer, Mitchell, Rogalla, & Schimetschek. All rights reserved.
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht