In my Op-ed published on December 8 by Bloomberg News (at ), I suggested that the Social Security System could be made financially stronger while giving Social Security beneficiaries more choices about how and when their benefits are distributed.

In last week’s blog I outlined the advantages of a strategy of staging the election of Social Security benefits.

To realize those advantages, we may have to solve a puzzle that, if not one for the ages, has caused academics and marketers to scratch their collective heads – why don’t more individuals elect lifetime annuities.

Well, the same issues apply to Social Security in its current form, as well as under the reforms I am proposing. Rather than being a question of whether or not to purchase a lifetime annuity with personal retirement savings, the Social Security decision is whether or not to delay election even when any such deferred payment has a fair market-based adjustment to the current payment available. In both cases the individual is exchanging the current value for a future value fairly determined.

Of course, there are any numbers of reasons, rational or not, for Social Security beneficiaries not to defer: (1) they absolutely need 100% of their Social Security payments to meet current expenses, or (2) they have no faith in the future of Social Security. However, current experience suggests that beneficiaries are electing Social Security earlier for the same reason that individuals don’t purchase lifetime annuities. It’s about somehow giving up the accrued value to the issuer (life insurance company or Social Security) at death before they “break even”.

In both of these instances, individuals for the most part don’t “get” the concept of risk pooling for lifetime annuity payments, while they do get it for life insurance, health insurance, and property and casualty insurance.

My proposed Social Security reform would address this puzzle by permitting beneficiaries to stage deferrals, elect survivor benefits, and select caregiver benefits – all on a fair market value basis.

Bottom line, rather than focusing on the same pieces in the puzzle over and over again, changing the offering would give individual beneficiaries more choices.

The same can be said for commercial payout annuities – there are a wide range of annuities that can help solve the retirement puzzle so many individuals now face. We just need to better educate the public and offer greater annuity flexibility to improve retirees’income plans.

Jerry Golden
Social Security reform that benefits retirees.