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Unusual Social Security Claiming Strategies: Costs and Distributional Effects

August 29, 2009
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Working Paper by Alicia H. Munnell, Alex Golub-Sass, Steven A. Sass, and Nadia S. Karamcheva

Disclaimer: The U.S. Social Security Administration substantially limited the use of the “free loan” strategy in 2010, see press release | federal ruling

Abstract

When to claim Social Security is one of the most important decisions Americans face when approaching retirement. Recently, several unconventional claiming strategies have come to light – “Free Loan,” “Claim and Suspend,” and “Claim Now, Claim More Later” – that have the potential to pay higher lifetime benefits to some individuals, increasing system costs. In the “Free Loan” strategy, an individual can claim benefits at a given age and later repay them and file again, obtaining an increased benefit from the delayed filing. This strategy is equivalent to a “no interest” loan from Social Security and could potentially cost the program as much as $11 billion a year. “Claim and Suspend” allows an individual to claim benefits and then immediately suspend them, either to put his own benefits on hold if he reenters the workforce or to allow his spouse to claim a spousal benefit while he continues to work and earn delayed retirement credits.  The potential cost of allowing couples the option of “Claim and Suspend” is about $0.5 billion dollars a year. In the “Claim Now, Claim More Later” strategy, a married individual claims a spousal benefit while delaying claiming his own retired worker benefit in order to build up delayed retirement credits. This option could potentially cost Social Security $10 billion a year. Of the three strategies, “Claim and Suspend” appears to have the clearest policy rationale as it provides an incentive for individuals to work longer.

Senior man working at laptop at home
Senior man working at laptop at home
Author(s)
Headshot of Alicia H. Munnell
Alicia H. Munnell
Headshot of Alex Golub-Sass
Alex Golub-Sass
Headshot of Steven A. Sass
Steven A. Sass
Headshot of Nadia S. Karamcheva
Nadia S. Karamcheva
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Executive Summary
Citation

Munnell, Alicia H., Alex Golub-Sass, Steven A. Sass, and Nadia S. Karamcheva. 2009. "Unusual Social Security Claiming Strategies: Costs and Distributional Effects" Working Paper 2009-17. Chestnut Hill, MA: Center for Retirement Research at Boston College.

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Topics
Social Security
Publication Type
Working Paper
Publication Number
WP#2009-17
Related Content

For related Issues in Brief:

Strange But True: Free Loan From Social Security
Strange But True: Claim Social Security Now, Claim More Later

Strange But True: Claim and Suspend Social Security

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