Source: SSA.

Social Security is an integral part of how retirees make ends meet, and most Americans simply can't wait to claim their benefits. Almost all retired workers begin receiving benefits before full retirement age, and nearly half claim them as soon as possible, according to research from the Social Security Administration. Yet some policymakers want to change that trend, and they have come up with a novel idea to get people to think twice before claiming: boosting the extra payments you can receive by waiting longer to take benefits.

Why the Social Security Administration wants you to wait
A report issued last year by the SSA's Office of Retirement and Disability Policy considered how to get more people to wait before claiming Social Security benefits. The report cites numerous independent researchers who argue that waiting to take Social Security is a key driver of financial security in retirement, pointing both to the economics of different claim-timing decisions and the change in demographics that has led to longer lifespans but earlier retirement ages.

Yet the SSA acknowledged most people don't believe the current incentives to delay taking Social Security are adequate to justify changing their behavior. Indeed, with the Government Accountability Office having said the timing of claiming Social Security is largely irrelevant to how much money the typical person will receive during his or her lifetime, many people see no reward in waiting. In order to change that perception, the SSA followed the recommendations of the Simpson-Bowles Commission and explored several strategies "with an eye toward encouraging delayed retirement." Let's look at one of the proposals, which would put more money in retirees' pockets earlier if they chose to wait even a single year beyond the minimum age to collect benefits.

Source: SSA Office of the Inspector General.

Making incentives work better
For those who want more people to wait before claiming, the major problem with Social Security's structure is that the incentives are essentially backward. Under current law, retirees get the smallest reward from waiting from age 62 to 63, as benefits rise from just 75% of your primary insurance amount to 80%. For future retirees born in 1960 and later whose full retirement age will be 67, that small increase will hold for two straight years, from age 62 to 64.

Thereafter, retirees receive bigger rewards the longer they wait. For those looking at retiring now, benefits rise 6 2/3 percentage points from age 63 to 66. Then, if you wait beyond full retirement age, you get the biggest boost of 8 percentage points per year.

What the SSA wants to consider instead is making the biggest percentage increases come at the youngest available claiming ages. Specifically, the study proposes to have benefits rise by 8 percentage points during the earliest years, and then become smaller as you approach full retirement age. For those with a full retirement age of 67, here's how the proposal would look compared to current law.

Source: SSA Office of Retirement and Disability Policy.

This proposal comes at a cost. As you can see, the benefit amounts are higher than under current law at all ages between 62 and full retirement age, which would result in greater total benefits that Social Security would have to pay. Moreover, by reducing the incentives you get by waiting from age 63 or 64 until full retirement age, this incentive shift would likely result in only partial success in the eyes of policymakers who would prefer to see more people wait until full retirement age or later. Indeed, some retirees might claim benefits earlier than they would have otherwise, particularly if they retired at 64 or 65 and faced smaller increases from further delay than under current law.

Still, the proposal has merit in one important respect: it focuses attention away from trying to persuade people to delay their claim by eight full years to age 70, when benefits reach their maximum. Instead, it looks for incremental gains that could have a much greater impact by targeting the huge number of people who claim at the earliest age possible.

There will always be some people who need to collect Social Security benefits as soon as they can. Yet if waiting is better for most people, then giving them an extra financial incentive to do so is more likely to succeed than simply telling them that they're making the wrong choice by claiming early.