Social Security: Later is better

New Fidelity survey shows more Americans plan to wait to claim benefits

By Mary Beth Franklin

Apr 28, 2017 @ 11:27 am EST

Americans are finally getting the message: Waiting to claim Social Security until full retirement age or later results in bigger monthly benefits for life and can also boost survivor benefits for a remaining spouse.

Today's pre-retirees (ages 55 to 61) are far less inclined to begin taking Social Security benefits as soon as possible, according to the latest Fidelity Investments "Social Security IQ Survey." This year, only 28% of those aged 61 said they are planning to claim benefits at 62, a marked contrast from the last time the survey was conducted nine years ago. In 2008, 45% of those surveyed said they planned to start collecting benefits immediately.

While the decrease in 61-year-olds planning to claim Social Security early is the most dramatic shift from the 2008 survey, many pre-retirees say they intend to wait longer before collecting. In 2008, 27% of 55- to 61-year-olds indicated they would collect Social Security as soon as they became eligible. This time, only 21% felt the same. The average age most people say they plan to collect is 67, with 7% opting to wait until 70, according to the latest survey.

There are a few possible reasons for the shift. An improving economic environment is one of the biggest factors. During the Great Recession nine years ago, more than half of 61-year-old respondents described themselves as unemployed, which may have prompted some of them to claim Social Security benefits early. In contrast, the number of 61-year-olds describing themselves as unemployed now has dropped to 41%.

In addition, twice as many pre-retirees today say that delaying benefits offers a better return than simply claiming Social Security as soon as possible and investing the benefits. Workers who postpone collecting benefits beyond their full retirement age receive an extra 8% per year in delayed retirement credits up to age 70 — an attractive return in today's low-interest rate environment. For married couples, a larger retirement benefit translates into a larger survivor benefit for the remaining spouse.

Another factor in the current desire to delay claiming benefits may be the increase in the full retirement age. Nine years ago, all the pre-retirees surveyed were born between 1947 and 1953, meaning their full retirement age was 66. Claiming benefits as early as possible at 62 would result in a 25% cut in benefits for the rest of their lives.

But for today's pre-retirees, the reduction for collecting benefits early is greater. The full retirement age for those born from 1956 through 1962 ranges from 66 and four months to 67. For someone born in 1960 or later, collecting benefits at 62 would result in a 30% reduction in monthly benefits.

"We are encouraged that more people seem to be making this decision more thoughtfully than in years past — not simply out of economic necessity," said Ken Hevert, senior vice president of retirement at Fidelity Investments.

"Social Security-related decisions can be complex with a number of trade-offs associated with the various payment strategies," Mr. Hevert added. "This decision can be challenging and may be dependent upon several factors, including one's financial situation, health and lifestyle considerations and the needs of your immediate family."

To help people better understand their Social Security claiming options and how they can impact retirement income, Fidelity has introduced a new Social Security benefits calculator. After answering just five questions about your age, gender, marital status, recent earnings and family health history, the calculator estimates your monthly and lifetime benefits based on your claiming age. The calculator is very basic and doesn't delve into claiming strategies to maximize lifetime benefits, but the Fidelity website offers helpful articles and webinars about Social Security rules and retirement income.

For more than 20 years, many Americans have relied on the annual estimated benefits statements they receive in the mail from the Social Security Administration to remind them how much they could expect to receive in monthly benefits when they retire. But due to budget restraints, the agency has decided to stop mailing statements except to those individuals who are 60 or older, who are not yet collecting benefits and who have not set up a personal Social Security account online at Ssa.gov/myaccount.

The demise of the paper statements may represent a lost opportunity to improve future retirement security. New research from Barbara Smith, senior economist at the Social Security Administration's Office of Retirement Policy, and Kenneth Couch, professor at the University of Connecticut, shows the paper statement had a significant effect on claiming behavior.

"We find that receipt of the statement resulted in statistically significant decreases in benefit claiming at earlier ages and corresponding increases in claiming at later ages," according to an abstract of the pair's latest research. They suggest the paper statement "might be an effective tool for policymakers interested in encouraging retirement security by having workers delay claiming Social Security benefits and work longer."

Is the online estimated benefit statement as effective as a public policy motivator? So far, more than 27 million people have created personal Social Security accounts online. While an impressive increase since the online accounts were launched in 2012, it still represents a mere fraction of the more than 170 million American workers who pay Social Security taxes and who will one day rely on those benefits.

(Questions about new Social Security rules? Find the answers in my new ebook.)

Mary Beth Franklin is a certified financial planner.

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