Is It Worth $60,000 to You to Delay Retirement?

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When the new Trump administration and all-Republican Congress takes office next month, one issue that appears to be high on the agenda is making changes to the two bedrock social welfare programs of the last 80 years: Social Security and Medicare/Medicaid. The changes that are being discussed most are raising the eligibility age and cuts to benefits, but there may be other ways to reduce the costs while still maintaining full benefits.

One such idea comes from economist Olivia Mitchell of the University of Pennsylvania’s Wharton School of Business. Mitchell suggests that in addition to raising the age for full Social Security retirement benefits, retirees willing to wait to claim their benefits could receive a lump-sum payment of some amount.

To determine what that amount might be, Mitchell and her co-author Raimond Maurer asked people between the ages of 50 and 70 if they could afford to and would be willing to wait four years to claim benefits if they could receive a lump sum when they began receiving benefits.

The researchers determined an “approximate actuarially fair” lump-sum amount of $60,000 and asked people if they would wait to begin collecting benefits until they turned 66 (retirement benefits may be claimed at the age of 62) if they could receive the lump-sum plus the same benefit they would have been eligible for at the age of 62.

For example, if at age 62 a person is eligible to receive $1,000 a month in retirement benefits for the rest of his or her life, under current rules waiting until age 66 would increase that benefit to $1,330. Just under half said they would wait.

But when the question was posed with a $1,000 monthly benefit and a one-time payment of $60,000, willingness to delay rose to 70.3%. Mitchell told Crain’s Wealth:

This is not trying to cheat people, but to give people another degree of freedom. This provides an opportunity to still get their monthly benefit check when they claim but to have more flexibility vis a vis the lump sum.