Why people who claim Social Security early often live to regret it

Since so many of my friends are either retired or approaching retirement, I thought this was timely.

My full retirement age is 66 years and 4 months according to Social Security, which is 48 months from now! The age changes by 2 months per year, until age 67 for those born after 1959. You can actually receive more if you delay collecting your benefits. The table below is for those born in 1956, like me and most of us who graduated from high school in 1974:

The chart below explains how delayed retirement affects your benefit. The increase is based on your date of birth and the number of months you delay the start of your retirement benefits. If you start receiving retirement benefits at age:

• 67, you'll get 105.3 percent of the monthly benefit because you delayed getting benefits for 8 months.
• 70, you'll get 129.3 percent of the monthly benefit because you delayed getting benefits for 44 months.

When you reach age 70, your monthly benefit stops increasing even if you continue to delay taking benefits.

But what happens if you decide to start collecting your benefits early? You can start collecting at age 62, no matter what year you were born.

Today's blog post is based on an article from Market Watch:

Your retirement standard of living could very well be worse if you claim your Social Security benefits at age 62.

That’s surprising because the Social Security Administration goes to great lengths to ensure that, regardless of when retirees claim their Social Security benefits, they will be no better or worse off. Those claiming at age 62 — “early claimers,” as they’re called — will receive more years of benefits than those who wait, but at a reduced rate. Assuming their life expectancy is equal to what the actuarial tables predict, the total benefits they receive in retirement will essentially be the same as if they had waited and received fewer years of higher monthly benefits.

A new study nevertheless finds that early claiming leads to a significant increase in the number of retirees living in poverty.

The article then points out:

Nevertheless, far more people claim their Social Security benefits at age 62 than at any other age, as you can see from the accompanying chart. More than a third of all retirees do so, in fact.

But why would people regret collecting benefits at age 62?

Instead, he continued, their finding reflects the entirety of a retiree’s financial situation during retirement, of which Social Security benefits are just one part. And upon taking all income sources into account, they found that early claiming is associated with a greater probability of living below the poverty line.

The article points out that this affects those at the lower economic levels the most but it doesn't give any numbers and the original article requires a purchase (which I didn't do) but the gist of the article seems to point to a lack of financial planning for those who collect their Social Security benefits early.

This also applies if you are thinking about collecting spouse or survivor benefits. See the link to the Social Security website above and click on the year you were born for more info.

Interesting days

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