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Should US Pay Workers To Delay Taking Social Security?

Saturday, May 25, 2013 - 10:08 AM
From MarketWatch:
Social Security already rewards workers for delayed retirement by increasing benefits with each passing year (and legislation in 1983 gradually raises the normal retirement age to 67 for people born after 1959). Four researchers looked into the idea of offering workers lump-sum payments to retire later. Their results suggest this approach could push more people to delay retirement without raising costs or cutting benefits.

Read more

The article discusses how the lump sum payment would work and explores who might be open to such an arrangement. 
4
pearlbrownpearlbrown1,491 posts since
Nov 2, 2010
Rep Points: 6,486
1. Saturday, May 25, 2013 - 1:41 PM
If someone did not HAVE to use SS for existence there was a good rule that recently was discontinued.

You could receive SS at 62 and at full retirment age elect to pay back previous payments.

They wouild then pay the higher rate for full retirement age. Would have been good to get funds back in the day for investment or those high CDs ect.

 
2
RicochetRicochet135 posts since
Jan 19, 2010
Rep Points: 367
2. Saturday, May 25, 2013 - 2:34 PM
Ricochet you are right, unfortunately that little-known provision became popular and has since been disallowed. 

A couple of years ago I attended a seminar where this was discussed.  If I recall correctly, the strategy was referred to as "claim and suspend", and allowed those at or beyond the so-called full retirement age (for example:  66 for those born between 1943 and 1954) to voluntarily put their benefits on hold. It was great for those who worried about extended longevity.    Someone who started claiming benefits at 62, for example, and reapplied at 70, would see a more than 70% bump in payments. 

It was a gold mine and the ultimate balance transfer:  no "3% of the amount transferred or $5" fees, but you definitely had to stay on top of the due date and be disciplined enough to have the funds available to repay the benefits.   
4
pearlbrownpearlbrown1,491 posts since
Nov 2, 2010
Rep Points: 6,486
3. Sunday, May 26, 2013 - 8:03 PM
A 20% lump sum bonus to defer payments one year and revert back to age 65 payment levels seems an insignificant inducement.  The big issue is if / when benefits will be reduced across the board to preserve system liquidity and/or retirement age tiers will be further postponed. 

Every calculation I've run doesn't justify delaying SS beyond 62, assuming one has other retirement fund sources sufficient to carry beyond 78, which is the break-even to claiming benefits at 66 with a 32.6% premium.  Delaying claims until 70, a 75% increased payment, delays break-even to 81.  Even if optimistic regarding chances for longevity, I don't see much actuarial benefit when lapsing realisitic, mathematically speaking.

Here's a worksheet with variable input fields that illustrate my conclusions. You'll need to download from G-Drive to modify for other circumstances.

SSPaymentSchedule2.xls - Google Drive
3
CraigPDCraigPD94 posts since
Jun 12, 2010
Rep Points: 336
4. Tuesday, May 28, 2013 - 6:45 PM
I need to correct my earlier post #2 - the payback option was the one that has been disallowed and was the proverbial gold mine/ ultimate balance transfer opportunity. 

"Claim and suspend" is still a valid strategy. 
1
pearlbrownpearlbrown1,491 posts since
Nov 2, 2010
Rep Points: 6,486
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