Abstract
We have designed and implemented an experimental module in the 2014 Health and Retirement Study (HRS) to measure older persons' willingness to defer claiming of Social Security benefits. Under the current system' status quo where delaying claiming boosts eventual benefits, we show that 46% of the respondents would delay claiming and work longer. If respondents were instead offered an actuarially fair lump sum payment instead of higher lifelong benefits, about 56% indicate they would delay claiming. Without a work requirement, the average amount needed to induce delayed claiming is only $60,400, while when part-time work is stipulated, the amount is slightly higher, $66,700. This small difference implies a low utility value of leisure foregone, of under 20% of average household income.
Highlights
We have designed and implemented an experimental module in the 2014 Health and Retirement Study to measure older persons’ willingness to defer claiming of Social Security benefits
The first examined whether Health and Retirement Study (HRS) respondents would be willing to defer Social Security claiming if they received their benefit increase from delaying as a lump sum instead of a higher lifetime income stream, with no need to work longer
Our work shows that this would have a positive effect on retirement security, in that people’s Social Security benefits rise each year of delay: benefits claimed at age 70 are over 75% higher than at age 62
Summary
We have designed and implemented an experimental module in the 2014 Health and Retirement Study to measure older persons’ willingness to defer claiming of Social Security benefits. Contrary to basic insurance principles, over one-third of all retiring Americans still claim Social Security benefits around age 62.1 One explanation for this behavior is that their advisers frequently focus on the so-called (and misleading) ‘breakeven’ approach to claiming That is, they encourage their clients to claim benefits early to avoid potentially ‘forfeiting’ their deferred benefits should they die too soon (Brown et al, 2016). Another explanation for early claiming is that many people underweight the economic value of lifetime benefit streams (Brown et al, 2017) This latter rationale motivates the current study, which explores whether making the benefit increment due to delayed claiming payable as a lump sum instead of a monthly benefit could serve as an incentive to drive later claiming and longer worklives..
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