Finding the Right Path for Defined Contribution Participants to Delay Claiming Social Security Retirement Benefits
There are few strategies as widely touted among retirement academics as delayed claiming of Social Security retirement benefits. Not only are Social Security retirement benefits explicitly linked to inflation, which is something no other annuity or guaranteed lifetime income product offers today, but Social Security retirement benefits are also tax advantaged, can provide attractive spousal survivor benefits, and are economically advantageous because they are based on relatively dated assumptions.¹ Despite these well-known benefits, the average claiming age today is approximately 65, with only roughly 5% of Americans delaying claiming benefits until age 70, and only roughly half of Americans delaying to full retirement age according to the Social Security Administration’s 2020 Annual Statistical Supplement.²
This paper explores the potential benefits of delayed claiming of Social Security retirement benefits, specifically from a defined contribution (DC) plan perspective.³ This piece provides an overview of Social Security retirement benefits, details how the potential economic benefits of delayed claiming can vary by longevity and in the presence of a spouse, and explains how Social Security retirement benefits fit within an overall DC context given the lack of complete participant information available (e.g., information about savings outside the DC plan). Understanding the potential benefits of delayed claiming of Social Security retirement benefits is especially timely given the increased focus among DC plan sponsors of making DC plans retirement friendly, especially since many of the other products or solutions actively being considered provide some form of longevity protection, such as annuities.