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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.
Retirement, pension, annuity, life cycle, welfare analysis
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All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2012 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.
The research reported herein was performed pursuant to a grant from the US Social Security Administration (SSA) to the Michigan Retirement Research Center (MRRC) as part of the Retirement Research Consortium. Additional research support was provided by the Deutsche Forschungsgemeinschaft (DFG), the German Investment and Asset Management Association (BVI), the Pension Research Council at The Wharton School of the University of Pennsylvania, and the Metzler Exchange Professor program.
Date Posted: 28 June 2019