Exchanging Delayed Social Security Benefits for Lump Sums: Could This Incentivize Longer Work Careers?
Social Security benefits are currently provided as a lifelong benefit stream, though some workers would be willing to trade a portion of their annuity streams in exchange for a lump sum amount. This paper explores whether allowing people to receive a lump sum as a payment for delayed retirement rather than as an addition to their lifetime Social Security benefits might induce them to work longer. We model the factors that influence how people trade off a Social Security stream for a lump sum, and we also examine the consequences of such tradeoffs for work, retirement, and life cycle wellbeing. Our base case indicates that workers given the chance to receive their delayed retirement credit as a lump sum payment would boost their average retirement age by 1.5-2 years. This will interest policymakers seeking to reform the Social Security system without raising costs or cutting benefits, while enhancing the incentives to delay retirement.
The research reported herein was performed pursuant to a grant from the US Social Security Administration (SSA) to the Michigan Retirement Research Center (MRRC) as part of the Retirement Research Consortium. Additional research support was provided by the Deutsche Forschungsgemeinschaft (DFG), the German Investment and Asset Management Association (BVI), the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania, and the Metzler Exchange Professor program The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Olivia S. Mitchell
Mitchell serves as a Trustee for the Wells Fargo Advantage Funds and has received more than $10,000 from the TIAA-CREF Institute and RAND for research studies on retirement security.