Evaluating Lump Sum Incentives for Delayed Social Security Claiming

Using behavioral parameters suggested by our research and simulated by the DYNASIM team at the Urban Institute, we evaluate the potential impact of a Lump Sum reform for delayed Social Security claiming. We show that the Lump Sum delayed benefit plan does not dramatically change solvency outcomes for the Payable or the Scheduled benchmarks. Thus, the proposed reform does not solve the solvency problem facing Social Security nor does it worsen it materially. Second, the differences in projected poverty fractions are remarkably small and may even be overestimated. Third, other distributional analyses show income increases, but the changes are relatively small relative to both Scheduled and Payable benchmarks. Fourth, asset projections show that the lowest and middle-income groups accumulate substantially higher nest eggs under the Lump Sum delayed benefit plan. This is a positive result inasmuch as lower-paid individuals are more likely to value the additional assets in retirement. Accordingly, the Lump Sum reform we have outlined here has positive distributional consequences overall without costing the system more money.