Communicating the Implications of How Long to Work and When to Claim Social Security Benefits
The decision of when to begin claiming SSA retirement benefits is part of an interconnected set of choices including how to draw down individual retirement savings and when to exit the workforce. Because the decision to begin claiming is often irrevocable, for retirees who begin claiming but then continue working or decide to return to work, an understanding of the applicable rules is extremely important. Retirees who claim before full retirement age and earn more than a specified (relatively low) income threshold receive reduced benefits prior to full retirement age (FRA) and increased benefits after FRA. Prior attempts to enhance understanding of the policy that results in these tradeoffs, termed the Retirement Earnings Test (RET), have not generally been successful. In four studies, we aim to increase understanding via visualizations. Study 1 assesses how well prospective retirees understand the impact on SSA benefits of continuing to work. Studies 2A, 2B, and 3 are randomized experiments that test whether alternative graphical ways to present these tradeoffs enhance understanding or affect labor decisions, using situations analogous to those of the RET (2A, 2B) or the RET itself (3). We find that a visualization that more clearly displays the tradeoff is able to improve understanding and application of RET policies. Prior research suggests that improvements in understanding of the social security system can generate large welfare gains; we would argue that improving understanding of RET can have similarly large effects. These tests of alternative visual presentations of the tradeoffs, informed by psychological research on how individuals understand income flows, can provide insight into how to improve RET communication.
The research reported herein was performed pursuant to grant RDR18000003 from the US Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA, any agency of the Federal Government, or NBER. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.