The Impact of Changing Three Little Phrases on Americans’ Social Security Decision-Making

When to claim Social Security retirement benefits is one of the most important decisions older Americans must make. Research has shown that optimal claiming ages vary depending on individual preferences, mortality risk, and health and economic circumstances. Nevertheless, there is broad agreement that some people make a suboptimal choice to claim too early—resulting in permanently reduced monthly payments.

Insights from behavioral economics have led policymakers and practitioners to acknowledge that people often make suboptimal decisions even when they have access to all the information that they need. “Nudges” – small changes that effectively direct people towards improved choices, but which are “soft” enough to allow people to make their own decisions – are one way to help. Examples of these nudges now abound in areas such as health, education, environment, and taxation.

In a recently published study, we tested a new approach to improving Social Security literacy and decision-making among American adults. Our approach provides no new material and no new information.  Instead we intervene by simply renaming a few critical terms, with the goal of making the information clearer and eliminating implicit nudges that reduce delayed claiming. Specifically, we examine the impact of changing the terminology Social Security Administration (SSA) uses for the different ages at which people can claim retirement benefits. These currently used terms are Early Eligibility Age, Full Retirement Age, and Delayed Retirement Credits.

A set of alternative terms, designed to be more transparent and that eliminate inappropriate anchoring at earlier claiming ages, was selected on the basis of an initial qualitative study and in consultation with SSA staff. We hypothesized that terms that are clearer and that implicitly convey the reduction of benefits resulting from early claiming ages would improve understanding of the trade-offs between claiming at different ages, thereby allowing people to make more informed decisions, which for many may result in claiming at later ages.

We evaluate the impact of the alternative terminology on knowledge, claiming decisions, and retirement age intentions through an online experiment conducted on a representative sample of nonretired Americans in the Understanding America Study (UAS) panel. All panelists were presented identical information relevant for the claiming decision. But, information presented to those in the treatment group used the alternative terminology while information presented to the control group used the current terminology. The current and alternative (treatment) terminology are as follow:

Current Terms Alternative Terms
Early Eligibility Age (EEA) Minimum Benefit Age (MinBA)
Full Retirement Age (FRA) Standard Benefit Age (SBA)
Delayed Retirement Credits (DRC) Maximum Benefit Age (MaxBA)

Our results suggest that the choice of terminology has important consequences. Respondents given the alternative terminology performed better in tests measuring their understanding of the information than those exposed to the current terminology. Although these respondents learned more, they also spent less time (about five percent less) reading the information, suggesting that the improvements resulted from information being easier to understand. In addition, intended claiming and retirement ages were higher among those given the information with alternative terminology by an average of two and a half months compared to those in the control group. Furthermore, when presented with characters in standardized vignettes, they were also more likely to recommend later claiming ages.

The implications of our study are important. The terminology currently used to explain the trade-offs in the claiming decision does not help people to adequately understand their options and may be leading some people to claim Social Security retirement benefits earlier than optimal. Our findings show that a very simple intervention – slight modifications of a few key words – can improve individuals’ understanding of the Social Security retirement claiming decision problem, and, as a result, change their intended claiming and retirement ages.

We do not know what the actual magnitude of the effect of changing the terminology in “real life” might be. The effect on intended claiming age may translate into a smaller effect on actual claiming age, due to constraints not accounted for in this experiment. Yet it is conceivable the effects will be larger in practice. As we show, people better understand the trade-offs as information becomes clearer – and better understanding likely leads to better decision-making. Also, this effect may be amplified through repeated exposure to information from the SSA itself as well as other agencies and groups, including AARP and media that provide education about claiming Social Security benefits, since all of them use SSA terminology. In fact, the results of this study may be useful for these organizations even in the absence of official changes in terminology. These organizations may decide it is worthwhile to aim to explain the concepts with simpler, more descriptive wording.

It is feasible to roll out this intervention uniformly at the national level, to immediate effect – improving clarity for millions of people, perhaps leading to improved decisions – while incurring only set-up costs. As such, a change to SSA terminology is potentially very cost-effective.