Working Paper: NBER ID: w19032
Authors: 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.
Keywords: Social Security; Lump Sum; Retirement; Labor Supply
JEL Codes: D11; D6; G11; G22; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lump sum payment for delayed retirement (J26) | average retirement age (J26) |
| lump sum payment for delayed retirement (J26) | probability of working beyond normal retirement age (J26) |
| lump sum payment for delayed retirement (J26) | overall well-being (I31) |
| lump sum payment for delayed retirement (J26) | system solvency (G33) |
| less risk-averse older households (D15) | response to lump sum payment (J33) |
| most risk-averse individuals (D81) | response to lump sum payment (J33) |