The Positive Impact of Claiming Social Security Later

The Center for Retirement Research says the reduction for claiming early is currently too large while the increase for claiming late is about right.

The most popular age for claiming Social Security benefits is age 62, the first year in which the benefits are available to people, according to the Center for Retirement Research at Boston College.

Thirty-five percent of men and 39% of women claim their benefits at that age. A mere 23% of men claim their Social Security benefit at full retirement age, and just 16% of women wait until that time.

The problem with that, according to a study by the Center, is that retirees would get substantially more in their Social Security check if they waited until age 70 to sign up.

Another problem is that the Center also found for the average worker, the reduction for claiming early is currently too large while the increase for claiming late is about right. Higher earners—who live longer and claim later—get a really good deal under the current system.

In a separate study, the Center for Retirement Research analyzed the actuarial impact of claiming benefits early versus waiting—which also underscored the downside of claiming early. The Center explains that the reason why benefits are reduced for those retiring earlier and increased for those retiring later “has always been to ensure that the costs to the system, for workers with average life expectancy, were not affected by the age at which they claimed. To keep the costs equal, benefits claimed early need to be reduced to reflect the increase in years of benefit receipt, and benefits claimed later need to be increased to reflect the fewer years.”

The Center concludes that given the increase in life expectancy and the decline in interest rates, both factors “would argue for smaller reductions for early claiming.” And, it says, “If the delayed retirement credit were based on the life expectancy of those who use it, it should be smaller than the current 8% to equalize the cost of early versus late claiming.”

Encouraging employees to claim later

In the more recent study, researchers tried various ways to encourage workers between the ages of 40 and 61 to wait to claim benefits. Two of the most successful tests asked participants to engage in a little self-reflection about the impact of choosing when to start receiving their Social Security benefit. These approaches differed from others that focused on merely providing financial information to people.

In both of the two most successful tests, workers were shown a table listing how much more they would receive from Social Security if they waited past age 62. In the first test, participants were asked to list their own reasons for how delaying would help them personally. They were then asked to list the reasons why they could benefit from starting their benefits earlier.

This group reported that they would sign up 10 months later than the control group, which did not engage in the test.

In the second test, participants were asked to think about the implications of living to a very old age, such as large medical bills and depleted retirement accounts. This group said they would delay the date for claiming benefits by six months.

The Center for Retirement Research says the way Social Security choices are presented to people, particularly in a personal sense, matters.