From Accounting For Social Security Claiming Behavior by
Svetlana Pashchenko and
Ponpoje Porapakkarm, a paper published by the Center for Retirement Research at Boston College:
The paper examines why most individuals claim Social Security benefits before the full retirement age. Early claiming results in a substantial reduction in pension income, yet many people claim as early as possible, age 62, or soon thereafter. Since delaying claiming is equivalent to purchasing additional annuity income, this behavior is consistent with the so-called annuity puzzle....
The paper found that:
- One of the important factors accounting for the low demand for public annuities is a significant discrepancy between : (i) th e individuals’ subjective discount rate, and (ii) the discount rate im plied by the implicit price of the Social Security annuity.
- Two of the commonly named impediments to private annuitization – mean -tested benefits and medical expenditures – are not important drivers of individuals’ decisions for when to claim Social Security benefits.Pre-annuitized wealth and bequest motives play a major role in the decisions to collect Social Security benefits. Our counterfactual experiments show that if the amount of basic Social Security benefits is scaled down or if the strength of the bequest motive is diminished, significantly more people will postpone claiming.
The policy implications of the findings are:
- Given that many people consider themselves sufficiently annuitized even when they claim at age 62, late claimer s should be awarded not with higher pension income but with lump -sum payments.
- We show that the policy of providing lump-sum payments instead of increasing Social Security benefits is very effective in inducing individuals to delay claiming.
It should be noted that this is an entirely theoretical work. No new real life data was collected.
You've got two economists who are disturbed by the fact that real people don't behave like the billiard balls that their theories suppose them to be so they try to come up with new theories that square with reality. That's perfectly appropriate as a matter of economics and it's an approach that may pay dividends but it's not proof of anything. Maybe lump sum payments would work. Maybe they wouldn't work.
I think the economists need to consider two possibilities more closely. One is that as people get older, on average, their health declines making it harder for them to work. The other is that as people get older, they become more interested in enjoying the benefits of retirement. People don't look at things in the same way when they're 62 that they did when they were 32. People aren't billiard balls. Maybe, we should let them make the decisions they want to make without prodding them to make decisions that other, younger people (as these economists almost certainly are) think they ought to make.
You've got two economists who are disturbed by the fact that real people don't behave like the billiard balls that their theories suppose them to be so they try to come up with new theories that square with reality. That's perfectly appropriate as a matter of economics and it's an approach that may pay dividends but it's not proof of anything. Maybe lump sum payments would work. Maybe they wouldn't work.
I think the economists need to consider two possibilities more closely. One is that as people get older, on average, their health declines making it harder for them to work. The other is that as people get older, they become more interested in enjoying the benefits of retirement. People don't look at things in the same way when they're 62 that they did when they were 32. People aren't billiard balls. Maybe, we should let them make the decisions they want to make without prodding them to make decisions that other, younger people (as these economists almost certainly are) think they ought to make.
