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Optimal Social Security Claiming Behavior Under Lump Sum Incentives: Theory and Evidence

36 Pages Posted: 18 Jan 2017 Last revised: 6 Feb 2017

Raimond Maurer

Goethe University Frankfurt - Finance Department

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Ralph Rogalla

St. John's University - Tobin College of Business - School of Risk Management, Insurance, and Actuarial Science; Goethe University Frankfurt - Department of Finance

Tatjana Schimetschek

Goethe University Frankfurt - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2017

Abstract

People who delay claiming Social Security receive higher lifelong benefits upon retirement. We survey individuals on their willingness to delay claiming later, if they could receive a lump sum in lieu of a higher annuity payment. Using a moment-matching approach, we calibrate a lifecycle model tracking observed claiming patterns under current rules and predict optimal claiming outcomes under the lump sum approach. Our model correctly predicts that early claimers under current rules would delay claiming most when offered actuarially fair lump sums, and for lump sums worth 87% as much, claiming ages would still be higher than at present.

Keywords: Annuity, delayed retirement, lifetime income, pension, early retirement, Social Security

JEL Classification: G11, G22, H55, J26, J32

Suggested Citation

Maurer, Raimond and Mitchell, Olivia S. and Rogalla, Ralph and Schimetschek, Tatjana, Optimal Social Security Claiming Behavior Under Lump Sum Incentives: Theory and Evidence (January 31, 2017). SAFE Working Paper No. 164. Available at SSRN: https://ssrn.com/abstract=2901376

Raimond Maurer (Contact Author)

Goethe University Frankfurt - Finance Department ( email )

Gr├╝neburgplatz 1
House of Finance
Frankfurt, 60323
Germany

Olivia Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ralph Rogalla

St. John's University - Tobin College of Business - School of Risk Management, Insurance, and Actuarial Science ( email )

101 Astor Place
New York, NY 10003
United States

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

Tatjana Schimetschek

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60629
Germany

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