- The system allows you to choose between a monthly increase of 4%, a single check, or a mixed option for delaying withdrawal.
- Recent studies reveal that the lump sum payment is not actuarially neutral, representing only 51,2% of the value of the lifetime supplement.
- The financial gap is more pronounced in women and people with high pensions due to longevity and the design of the formula.
- There are tax advantages for the taxpayer and exemptions in contributions for companies that maintain these workers.
Delaying retirement is an option that more and more workers in Spain are considering to improve their future financial situation. This approach, known as delayed retirement , allows those who have already reached the legal retirement age to choose to remain active, receiving in return a financial reward that can make a significant difference to their quality of life in their later years.
However, choosing how to receive this bonus isn't as simple as it seems. There's a financial gap between a lump sum check and a monthly pension increase that many are unaware of, and which, according to technical analyses, could represent a considerable loss of money for retirees if they don't carefully consider their individual circumstances and the numbers.
What exactly does delaying retirement entail?
Basically, it's a voluntary decision. If you're already of retirement age and have contributed to social security for at least 15 years , you can choose to continue working. By doing so, Social Security offers you an incentive for each year you extend your working life, which is especially helpful for those with short contribution histories or low contribution bases.
The three ways to collect the late payment incentive
The current system offers three different paths, and this is where the worker must tread carefully to avoid losing out:
- The monthly increase (4% additional): For each full year you continue working, your monthly pension will increase by 4%. From April 2025, if the delay is more than six months but less than a year (and you are already in your second year of delay), an additional 2% can be added. This is the lifetime annuity option.
- The single payment or check: You receive a fixed sum of money upon retirement. The amount depends on the number of years you have contributed to social security by the time you reach retirement age. If you have contributed for more than 44 and a half years, the amount increases by 10%. The amounts typically range from €4.800 to €13.500 per year of delayed retirement.
- The mixed modality: It's a hybrid plan available for those who delay retirement between 2 and 10 years. You receive a 4% monthly increase for some of the years and a reduced lump sum payment (half the total check) for the other. If you delay retirement for more than 11 years, you receive the check for 5 years and the monthly percentage increase for the remaining years.
The actuarial neutrality controversy: Are we being given less?
This is where the study by Ahmed Ación López and Carlos Vidal-Meliá, published by Fedea, comes in. The concept of actuarial neutrality means that, financially, receiving the money in a lump sum should be equivalent to the value of all the monthly payments you forgo for the rest of your life. But the reality is very different.
An analysis of 280 profiles reveals that the lump-sum payment represents, on average, only 51,2% of the actuarial value of the lifetime supplement. In simpler terms: those who choose the check are forgoing almost half the real economic value of their incentive. Even more concerning is that none of the profiles analyzed achieve a break-even point; all lose money from a strictly financial perspective.
Who is most negatively affected by the lump sum payment?
The imbalance in the formulas does not affect everyone equally. The study highlights two particularly penalized groups:
- Women: Because they have a longer life expectancy, the value of receiving a monthly bonus for more years is much higher, but the lump sum payment does not take this difference in longevity into account.
- High pensions: The check does not increase proportionally to the pension, while the monthly increase does. This creates a distributive bias where those with higher pensions lose a higher percentage of money when choosing capital.
Does it make sense to choose the lump sum payment despite everything?
Even though the numbers might suggest it's a bad deal, choosing cash isn't necessarily a crazy idea. There are situations where immediate liquidity is essential, such as paying off mortgages, making profitable investments, covering medical emergencies, or leaving a tangible inheritance for your children.
There is also the so-called regulatory risk . Many workers fear that pension laws will change in the future and prefer to have the money in their account now before the government alters the rules. Furthermore, from a tax perspective, a lump sum payment can benefit from a 30% reduction in income tax under Article 18 of the law, something that does not apply to monthly increases.
Advantages for companies and necessary procedures
Not only do employees benefit; companies also have incentives to keep their employees from retiring. They are exempt from paying social security contributions for common contingencies (except for temporary disability) for these workers. They even receive a 75% reduction in the employer's contribution when the employee, already over 62 years old, is on temporary disability leave.
To apply, simply check the delayed retirement box on the pension application form. If you are a civil servant, you must notify your human resources department. For everyone else, contributions are calculated automatically through the TGSS (General Treasury of Social Security) and the INSS (National Social Security Institute). Furthermore, the Tu Seguridad Social (Your Social Security) simulator is a key tool for comparing your potential pension under each of the three options before making a final decision.
The choice between immediate liquidity and lifetime security depends on each person's profile, although technical data suggests that the monthly increase is financially superior. While a check offers quick solutions and tax advantages, a monthly income provides better protection against longevity, especially for women and those with high salaries, making it imperative that individuals analyze their life expectancy and financial needs before forgoing actuarial neutrality.