If peoplewere more patient (could wait for that higher monthly rate), and/or“if the Social Security annuity was 'priced' based on a higherimplied interest rate,” considerably more of them would opt fordelaying claims, researchers say. (Photo: Shutterstock)

Most people sign up for Social Security benefits as soon as they'reeligible—at age 62 or some other age prior to their full retirementage—despite the fact that doing so can actually cost themquite a bit of money because of reduced monthly benefits.

But according to a new research paper from the Center for Retirement Research at BostonCollege, that behavior—which the authors compare to failing topurchase additional annuity income—can be changed.

The behavior of claiming Social Security benefits early, theauthors write, “is consistent with the so-called annuity puzzle.”The puzzle, roughly summarized, is that people don't do what theyshould do — that is, economic theory predicts people willannuitize wealth, but they don't in real life.

The “price” of boosting the amount of that annuity is, they say,“equal to one year of the foregone benefits,” one year for eachyear claiming is delayed.

And most people don't do that. They don't do it with privateannuities, either, thanks to such “market frictions as adverseselection and the existence of minimum purchase requirements.”

But those can't really be the reasons people choose not to holdoff on claiming benefits so that they can increase a publicannuity, and the study sought to find out why.

Considering such factors that weigh on the purchase of privateannuities as uncertain medical expenses, bequest motives,means-tested benefits and pre-annuitized wealth, they write, intheir model the study subject faces “a key trade-off in thisdecision”: whether to take “an immediate increase in the availableresources” or wait for “a higher lifetime pension income startingone year later.”

The choice depends on how much future benefits will increase;available resources; anticipated spending on health care andlongevity; how strongly they feel about bequests; and what theirtime preferences are.

If people were more patient (could wait for that higher monthlyrate), and/or “if the Social Security annuity was 'priced' based ona higher implied interest rate,” considerably more of them wouldopt for delaying claims.

In addition, the report finds, “if the amount of basic SocialSecurity benefits is scaled down or if the strength of the bequestmotive is diminished, significantly more” will postpone claimingbenefits.

The study concludes that rewarding people with lump-sum paymentsrather than higher monthly benefits for delaying claims would be“very effective” in convincing people to delay claiming.

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