Most People Claim Social Security Too Soon
There's a big financial advantage in waiting, if you can
(This article appeared previously on MarketWatch.com.)
When should you claim Social Security? The advice is generally to delay as long as possible. But according to a report recently issued by the Government Accountability Office (GAO), middle-income retirees are much less likely than wealthy ones to take that advice.
For many people, it pays to defer claiming Social Security. While it’s possible to start taking benefits as early as age 62, for every year you wait between age 62 and 70, the amount you get will rise by 6 to 8 percent.
Delaying can make sense even for some who are unlikely to live long. The reason: When the higher earner in a couple delays, the survivor will inherit a higher lifelong income. (When one spouse dies, the other can choose whether to stick with his or her own benefit or switch to the deceased spouse’s.)
Unable to Wait
But as the GAO report shows, while middle- and lower-income workers would often benefit most from maximizing Social Security (because they have relatively little in savings), many in that group can't wait that long.
Not surprisingly, the report found, those who delay claiming tend to be better off financially. Their median income at age 72 from all sources (including savings and Social Security) for those who delayed claiming until Full Retirement Age — which is 66 for those born between 1943 and 1954 — was $51,200, versus $38,400 for early claimers.
More Are Delaying, But Most Don't
More people are delaying taking Social Security these days. While 43 percent of men and 49 percent of women born in 1935 claimed benefits immediately upon turning 62, for those born in 1946, the percentage who did so fell to 32 percent for men and 38 percent for women.
Still, the GAO notes, “62 remains the most prevalent age to claim Social Security benefits, and the large majority of eligible workers claim by their Full Retirement Age.” Among those born in 1946, only 8 percent of men and 7 percent of women delayed claiming until age 67 or later, the report says.
Reasons for Early Collection
Why do so few people delay? The report points to several factors:
- Those who expect to die sooner, because of a health problem or family history of relatively short lifespans, are more likely to claim earlier.
- In some professions, it’s more difficult or even impossible to stay on the job as long as one might like. “Compared to all other occupations, those who held a blue-collar job” were 55 percent more likely to claim early, the report says. Among construction workers, for example, 49 percent claimed at age 62. For farmers, an even higher 54 percent did so. By contrast, among those in managerial and professional occupations, the percentages are far lower — 26 percent and 22 percent, respectively.
- The unemployed and people with part-time positions are more likely to claim at younger ages. In fact, those with full-time positions are 30 percent less likely to claim early.
- Those with less than a college degree are 23 percent more likely to claim early.
- Widows and widowers are 3.1 and 4.6 times more likely to claim early, respectively.
- Those with household wealth in the middle two quartiles — which range from $83,638 to $585,052 — are more likely to claim early, compared to those in the highest quartile. “We find the same pattern for total household income at age 60 through 62,” the report says.
So while many people do not have the luxury or inclination to delay collecting Social Security, if you can put it off even a few extra years, you'll be glad you did.