Social Security: Rewards For Waiting

Credit: Shutterstock photo

By Jennie L. Phipps for Bankrate.com

Nearly half of the people eligible for Social Security claim it at 62, which for those reaching eligibility age today cuts their benefits by 25 percent compared to someone who waits a few extra years to claim.

Because that haircut is likely to mean that they will come up short as they age, the Social Security Administration has been looking at ways to encourage people to wait, ideally to full retirement age, which is currently 66 or 67 based on the year you were born.

Social Security already has incentives in place to encourage people to wait longer to claim. People who wait beyond full retirement age get an 8 percent bump annually until they reach age 70 for a maximum total reward of 32 percent plus cost of living adjustments.

It’s not a bad deal but it doesn't seem to work because only about 3 percent of people take it.

Social Security researchers took a look at this problem and have tried to devise some more attractive incentives. Here are three of them they conclude could work, based on data from surveys done by academic researchers.

A lump-sum reward. Annuities aren't popular, and Social Security is an annuity. To get around that basic problem, Social Security would offer lump-sum bonuses to people who delay claiming until they are older than 62. In one scenario, they would be able to trade current increases in their monthly payments that come with waiting for a lump-sum payment available when they reached age 66 (or 67 for younger participants). In another, people who wait would continue to get monthly bonuses and a lump-sum payment at full retirement age, but they would give up the option of getting delayed credits for waiting to claim past full retirement age.

Intermittent bonuses tied to income from working after age 62. People who continued to work after age 62 and didn’t claim benefits would receive a bonus at each yearly interval until they reached their full retirement age. The bonus would be based on annual earnings and there would be a cap on high earners.

A lottery to reward people who delay claiming. Only people who continue to work would be eligible to participate in the lottery and the prize would be large enough to make participation attractive.

Would any of these make you want to wait to claim Social Security? Which one do you think is the most attractive?

Here are seven little-known facts about Social Security.

This article was originally published on Bankrate.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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