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Optimal social security claiming behavior under lump sum incentives: Theory and evidence

Raimond Maurer, Olivia Mitchell, Ralph Rogalla and Tatjana Schimetschek

Journal of Risk & Insurance, 2021, vol. 88, issue 1, 5-27

Abstract: Many Americans claim Social Security benefits early, though this leaves them with lower monthly payments 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 were to receive 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.

Date: 2021
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https://doi.org/10.1111/jori.12302

Related works:
Working Paper: Optimal social security claiming behavior under lump sum incentives: Theory and evidence (2019) Downloads
Working Paper: Optimal Social Security Claiming Behavior under Lump Sum Incentives: Theory and Evidence (2017) Downloads
Working Paper: Optimal social security claiming behavior under lump sum incentives: Theory and evidence (2017) Downloads
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