A fair amount of interest exists for a retirement option in
which people would use a portion of their 401(k) assets to delay claiming
Social Security benefits, according to a new study by researchers at the Center
for Retirement Research at Boston College.
“If borne out in reality, these benefit increases would
contribute to retirement security by giving retirees additional guaranteed
income for the rest of their lives,” Alicia Munnell and Gal Wettstein reported
in their study released this month.
The so-called bridge option would use 401(k) assets to pay
retirees an amount equivalent to their Social Security benefits, allowing them
to postpone claiming the benefits, which would increase their monthly payment
when they do file.
The research used a survey conducted using the AmeriSpeak
panel run by NORC at the University of Chicago. Participants were ages 50-65,
not retired and had 401(k) balances of at least $25,000. The survey was
conducted online in July 2021 and included 1,349 respondents.
Members of one group were given minimal information about
the bridge strategy The researchers reported that 26.8% of that group said they
would be interested in using the bridge.
A second group was presented with the pros and cons of using
insurance versus investments. A total of 35% of that group expressed interest.
“If borne out in reality, these benefit increases would
contribute to retirement security by giving retirees additional guaranteed
income for the rest of their lives,” the researchers said.
They added, “The results here are a first step. While they
indicate interest in the bridge strategy and suggest some means of increasing
take-up, future work should examine the impact of a default in a more realistic
setting.”
They said that the market for annuity products is small,
although they have significant benefits.
A Social Security bridge would help people reap the benefits
of waiting to claim benefits without having to change their retirement age,
they wrote. Employers would distribute payments from their 401(k) equal to the
Social Security benefits they would have gotten.
Munnell and Wettstein said that in an attempt to make the
process as seamless as possible, the bridge strategy would be the default, with
a percentage of an employee’s 401(k) assets automatically allocated to it. They
said that a default is much more likely to be maintained by people
participating in a plan as opposed to a process that would require them to opt
into it.
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