Social Security Tricks: Ace the Ultimate Marshmallow Test

It is no secret that delaying the start of your Social Security benefits will probably pay off big in the long run.  However, most retirees eschew the advice and start getting Social Security paychecks almost as soon as they are eligible.

According to a report by the Center for Retirement Research at Boston College, 90% of Americans begin Social Security retirement benefits at or before their full retirement age. In fact, the most popular age to start is 62, the earliest age possible.
Social Security Tricks

When to Start Social Security — The Ultimate Marshmallow Test

The marshmallow test is a now famous experiment conducted at Stanford University in the late 1960s. Researchers offered children a choice between one marshmallow now or two marshmallows if they waited a short period of time.  Videos of children struggling with the decision can be heartwarming and hilarious.

Retirees today struggle with a similar choice of when to start Social Security benefits.  In most cases you clearly get more if you wait, but many don’t want to delay getting the monthly paycheck.

Wait to Start Social Security and Earn A Lot More

If you have not yet started your Social Security, the best thing you can do to live more comfortably, is to wait to claim your benefits.  If you have reached normal retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your benefits.

For each year after that, up to age 70, your benefits increase 8%, meaning you can access 32% more at age 70 than at age 66.

If those benefits are tapped at younger than normal retirement age, they are reduced based on the number of months you receive benefits before you reach your full retirement age. For example, if your full retirement age is 66, the reduction of your benefits at age 62 is 25%; at age 63, it is about 20%; at age 64, it is about 13.3%; and at age 65, it is about 6.7%, according to data from the Social Security Administration.

People who claim early are giving up nearly $100,000 in benefits over their lifetimes.

Social Security Tricks: Economist Figures Out Possible Way to Trick People into Waiting to Start Benefits

Olivia Mitchell is an economist at the Wharton School of the University of Pennsylvania.

She has an idea that may help people make the “right” — more profitable — decision about when to start Social Security.

Mitchell ran an experiment.  She offered different kinds of incentives to people for delaying the start of Social Security benefits and the results are very interesting:

  • If potential Social Security recipients were told the difference in benefits they could receive if they claimed at age 62 vs delaying until age 66, 50% of people opted to delay.
  • If people needed to work during the waiting time to start benefits, then only 46% opted to delay.
  • However, if the researchers promised recipients that if they delayed their claim then they would get $1,000 a month and a lump sum of $60,000 when you claimed at 66? Then the willingness to delay rose to 70.3% (no work while waiting) or 55.5% (working half-time while waiting).

So, it appears that getting a lump sum payout might be an interesting incentive to get people to delay starting Social Security.

Successful Marshmallow Test Strategies Applied to Social Security

The $60,000 incentive to delay the start of Social Security benefits described above was only experimental.  However, there are ways that you might be able to convince and reward yourself for delaying the start of benefits.

Some of the children who aced the marshmallow test constantly reminded themselves about the benefits they were waiting to earn.  You can do something similar with your Social Security benefits:

Make sure you understand the advantages of waiting.

First, figure out the potential lifetime value of your own Social Security benefits if you start at 62 or your maximum retirement age.  To do this:

  1. Find out the monthly value of your benefit at 62 and the monthly value of your benefit at your maximum retirement age.
  2. Next, take a guess about how long you will live and figure out how many months you will be receiving benefits if you start at 62 or if you start at a delayed age.
  3. Finally, multiply the benefit amounts by the number of months you will be receiving benefits.
  4. You may be surprised by how much more money you will receive over your lifetime if you delay benefits.

To do this calculation automatically, try the Break Even Social Security Calculator.

Other Ways You Can Incentivize Yourself to Make the Right Social Security Decision

Knowing how much more money you will earn over your lifetime might not be enough of an incentive for you to delay the start of benefits.  So, perhaps you might want to consider giving yourself an additional incentive like Mitchell did in her experiment or successful marshmallow test kids have done.

Could you:

  • Allow yourself to retire a year or two earlier if you delay benefits
  • While delaying benefits, could you withdraw some amount from your retirement savings to use for a special trip or other treat for yourself.
  • Plan a special splurge for when you do start benefits?

Use the NewRetirement retirement calculator to experiment with different incentives and different Social Security start dates.  You can model giving yourself a financial reward or delaying the start of benefits and see how your finances throughout retirement are impacted.  Discover meaningful ways you can improve your retirement finances.This tool was named a best retirement calculator by the American Association of Individual Investor’s (AAII).

See how changes to your social security elections might impact your retirement plan



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