Would a lump sum convince you to delay retirement?

One reason Olivia Mitchell wants to save Social Security is to avoid the reduction in benefits she expects from the ailing program just when she wants to retire.

But Mitchell spends a lot more time worrying about retirement professionally, as an economist at the Wharton School of the University of Pennsylvania.

"Social Security as a program is facing insolvency and will not be able to pay the full promised benefits in about 16 years from now," she said. "It concerns me that nobody's really talking seriously about fixing it."

One part of any eventual fix, Mitchell figures, will be raising the retirement age to 70 or even 75, from 66 for many people now. (For those born in 1960 and later, full retirement age is 67.)

She has another proposal for policymakers to consider: Reward people for waiting to claim their share by paying some of their benefits in a lump sum when they finally start taking monthly checks.

Most people claim Social Security as soon as they can, at age 62. Some don't have the financial flexibility to wait. But those who can afford to defer their benefit checks, yet still claim them as soon as they turn 62, pass up a significantly richer Social Security deal. Right now, waiting to claim until you're 70 can provide as much as an 85 percent boost to that guaranteed, inflation-adjusted stream of income that, together with the rest of your savings and investments, will sustain you in retirement. Plus, by working a few more years you're adding to your retirement pot.

What does it take to make people wait?

Mitchell ran an experiment. In the current system, the only way to benefit from waiting to claim comes in those higher monthly checks for life. Mitchell and Raimond Maurer, a finance professor at Germany's Goethe University, wanted to find out what would happen if people who could afford to wait for their Social Security benefits were promised a lump sum to do so.

Their study, titled "Older People's Willingness to Delay Social Security Claiming" and based on survey work the authors included in the 2014 Heath and Retirement Study, assigned an "approximate actuarially fair" dollar amount of $60,000 to the value of waiting four years after people could first claim - so, until age 66 - to apply for their benefit. The researchers asked people between the ages of 50 and 70 to assume they were 62, single, and could afford to wait to claim.

First they tested how many people would hold off claiming in order to get a higher lifetime benefit in the current Social Security program. The scenario: You get $1,000 a month for life if you claim your benefits at 62, or $1,330 a month if you wait to claim until age 66, the full retirement age for many older workers.

Just under 50 percent of people said they would delay to get that $1,330 a month.

They also studied how the need to work while waiting to earn those higher benefits would change claiming decisions. If respondents were told they had to work half-time during the four years before claiming Social Security, the percentage opting for the higher payment fell to about 46 percent.

But what if by delaying your claim you got that $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 percent (no work while waiting) or 55.5 percent (working half-time while waiting).

The survey also found that people would accept less than the fair amount of $60,000 to delay claiming. Thirty-four percent said they'd take less than $60,000 if they didn't have to work during the wait; the average amount was $53,711. It fell to 30 percent if they had to work half-time during the wait, and the average dollar amount required to wait went up to $61,406.

At the other end of the spectrum, only 3 percent said they'd require more than $100,000 to delay claiming. That rose to 5 percent if working half-time was required. For most people, it took an eventual $60,000 to $80,000 lump sum to make waiting to claim attractive.

"This is not trying to cheat people, but to give people another degree of freedom," Mitchell said. "This provides an opportunity to still get their monthly benefit check when they claim but to have more flexibility vis a vis the lump sum."

As we keep living longer, society needs to find ways to encourage us to work longer. Mitchell pointed out that when FDR signed the Social Security Act in 1935, life expectancy was 65, and that it is now more like 85. And studies show the vast majority of baby boomers want to work longer. "Recent evidence indicates that working longer may well be associated with better mental and physical health," Mitchell and Maurer write in the paper.

"Retirement is a modern invention," Mitchell said. "And we are going to have to completely remake it."