The Potential Effect of Offering Lump Sums in the Social Security Program

Source: Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla, and Tatjana Schimetschek, Wharton School of the University of Pennsylvania, Public Policy Initiative, Issue Brief: Volume 3, Number 9, November 2015

From the summary:
• Political debate has focused on the question of whether Social Security solvency should be achieved by larger benefit cuts or higher taxes, which in effect asks which people—current or future generations—should bear the greater burden of fixing the system.
• But new research reframes this debate, offering a budget-neutral, actuarially fair lump sum payment, instead of the current delayed retirement credit, as a way to encourage people to delay claiming their Social Security benefits and work longer.
• Under one of the lump sum alternatives presented here, survey participants indicated a willingness to delay claiming Social Security by up to eight months, on average, compared to the status quo, and to continue working for four of them.
• Delayed claiming would mean additional months or years of Social Security payroll tax contributions, which could modestly improve the program’s solvency. Other benefits are possible as well: improved physical and mental health among the elderly from extended labor force participation, which could reduce the strain on health care programs like Medicare and Medicaid and help offset the macroeconomic costs of an aging population.