Delaying Social Security Retirement Benefits: The Bridge to Better Outcomes in Defined Contribution Plans?

Abstract

This paper explores the potential benefits of delayed claiming of Social Security retirement benefits from a defined contribution (DC) plan perspective. This analysis suggests the average retiree, especially the average DC participant, would likely benefit from delayed claiming; however, relatively few retirees fully delay to age 70 or appear to have the financial means to do so (when focusing on DC balances). Therefore, increasing awareness of the benefits of delayed claiming to DC participants is important, as is ensuring participants have considered the strategy before allocating to an alternative lifetime income solution in the DC plan, such as an annuity. One approach to potentially improve claiming behaviors through preconditioning would be to create an explicit “bridge account” within the default investment to fund spending during the delay period. Overall, this analysis suggests that delayed claiming needs to be more proactively considered among DC plan sponsors and participants.