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

39 Pages Posted: 6 Nov 2019

See all articles by Raimond Maurer

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 3 versions of this paper

Date Written: May 4, 2019

Abstract

Many Americans claim Social Security benefits early, though this leaves them with lower benefits throughout retirement. We build a lifecycle model that closely tracks claiming patterns under current rules, and we use it to predict claiming delays if, by delaying benefits, people received a lump sum instead of an annuity. We predict that current early claimers would defer claiming by a year given actuarially fair lump sums, and the predictions conform with respondents’ answers to a strategic survey about the lump sum. In other words, such a reform could provide an avenue for encouraging delayed retirement without benefit cuts or tax increases. Moreover, many people would still defer claiming even for smaller lump sums.

Keywords: Retirement, annuity, delayed claiming, 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 (May 4, 2019). CFS Working Paper, No. 629, 2019. Available at SSRN: https://ssrn.com/abstract=3476315 or http://dx.doi.org/10.2139/ssrn.3476315

Raimond Maurer

Goethe University Frankfurt - Finance Department ( email )

GrĂĽneburgplatz 1
House of Finance
Frankfurt, 60323
Germany

Olivia S. Mitchell (Contact Author)

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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