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

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Wharton Pension Research Council Working Papers
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Annuity
delayed retirement
lifetime income
pension
early retirement
Social Security
Economics
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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.

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2023-01-13
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Published in Journal of Risk and Insurance Vol 88, Issue 1, March 2021, pages 5-27 https://doi.org/10.1111/jori.12302
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