Incentivizing Delayed Claiming of Social Security Retirement Benefits Before Reaching the Full Retirement Age

Abstract

Claiming Social Security retirement benefits before the full retirement age (FRA) results in permanently lower benefits. Therefore, delaying claiming is often considered the best decision economically. We examine a number of novel changes aimed at encouraging individuals to delay claiming in the months and years before reaching their FRA, such as changing the early retirement reductions, paying lump sums, rewarding work with bonuses, instituting a lottery, and reforming the earnings test. We use Modeling Income in the Near Term, Version 6 data to determine the socioeconomic characteristics of individuals who claim at various ages and analyze one of the incentives to encourage delayed claiming: changing the early retirement reductions. We model the incentive first with no assumed behavioral response, and then we assume a 1-year delay in benefit claiming. We find that the delay in claiming would result in larger increases to both monthly and lifetime benefits than would the incentive alone.

Keywords: Social Security, simulation, older workers, intertemporal consumer choice, sociodemographic, education, income, poverty measurement

JEL Classification: C15, D91, H55, I24, I32, J11, J14