Communicating the Implications of How Long to Work and When to Claim Social Security Benefits

The decision of when to begin claiming SSA retirement benefits is part of an interconnected set of choices including how to draw down individual retirement savings and when to exit the workforce. Because the decision to begin claiming is often irrevocable, for retirees who begin claiming but then continue working or decide to return to work, an understanding of the applicable rules is extremely important. Retirees who claim before full retirement age and earn more than a specified (relatively low) income threshold receive reduced benefits prior to full retirement age (FRA) and increased benefits after FRA. Prior attempts to enhance understanding of the policy that results in these tradeoffs, termed the Retirement Earnings Test (RET), have not generally been successful. In four studies, we aim to increase understanding via visualizations. Study 1 assesses how well prospective retirees understand the impact on SSA benefits of continuing to work. Studies 2A, 2B, and 3 are randomized experiments that test whether alternative graphical ways to present these tradeoffs enhance understanding or affect labor decisions, using situations analogous to those of the RET (2A, 2B) or the RET itself (3). We find that a visualization that more clearly displays the tradeoff is able to improve understanding and application of RET policies. Prior research suggests that improvements in understanding of the social security system can generate large welfare gains; we would argue that improving understanding of RET can have similarly large effects. These tests of alternative visual presentations of the tradeoffs, informed by psychological research on how individuals understand income flows, can provide insight into how to improve RET communication.