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Exchanging Delayed Social Security Benefits for Lump Sums: Could This Incentivize Longer Work Careers?

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  • Jingjing Chai
  • Raimond Maurer
  • Olivia S. Mitchell
  • Ralph Rogalla

Abstract

Social Security benefits are currently provided as a lifelong benefit stream, though some workers would be willing to trade a portion of their annuity streams in exchange for a lump sum amount. This paper explores whether allowing people to receive a lump sum as a payment for delayed retirement rather than as an addition to their lifetime Social Security benefits might induce them to work longer. We model the factors that influence how people trade off a Social Security stream for a lump sum, and we also examine the consequences of such tradeoffs for work, retirement, and life cycle wellbeing. Our base case indicates that workers given the chance to receive their delayed retirement credit as a lump sum payment would boost their average retirement age by 1.5-2 years. This will interest policymakers seeking to reform the Social Security system without raising costs or cutting benefits, while enhancing the incentives to delay retirement.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19032.

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Date of creation: May 2013
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Handle: RePEc:nbr:nberwo:19032

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