Improve your retirement cash flow by planning your Social Security benefits
Would you like to increase your retirement cash flow by tens of thousands of dollars? A Pew Research Center survey in 2013 found that Social Security is one of the most popular federal programs. Despite its popularity, few people understand how it works. One of the most important choices presented by Social Security to beneficiaries is when to claim Social Security. The largest percent of eligible workers claim their benefits at age 62 despite the fact that doing so permanently reduces their benefit and delaying the benefit substantially increases the monthly benefit. Because it plays such a significant role as the primary retirement benefit to support older Americans, there’s a significant push to find ways to encourage older Americans to postpone filing for their benefit even for a short period of time.
A new survey suggests one way to get around this is to consider paying a lump sum to beneficiaries if they postpone claiming. They offered respondents three choices including the current option which is to postpone up to age 70 to grow their benefit. The other options included a lump sum that would be equal to their increased benefits over what they would receive at a later age (at least age 63) or an escalating monthly benefit until FRA at which point rather than receiving the higher benefit amount they could choose to receive an actuarially equivalent lump sum payment. A similar option is already available. You can read more about it by getting our white paper on “Claiming Social Security Benefits“.
What the study found was workers would postpone by either half a year for the former option or three-quarters of a year for the latter option. Those most responsive to the options were those who were considering applying for benefits the earliest.
If the government can find ways to convince people to hold off longer before applying for benefits it would help to postpone the government’s own deadline for when Social Security begins to run a deficit (currently expected to occur around 2033). In addition, because so many people will be retiring in the next 15 to 20 years, the effect of delaying claiming retirement benefits would also increase the gross domestic product and labor force participation at a time when our aging population will likely cause the greatest impact.
Additional reading about Social Security payouts: