Gambling On Claiming Social Security Early
Carol Orsborn, in The Boomer Blog (link), points to a potentially tragic trend in workers claiming Social Security at the earliest opportunity. She quotes a USA Today article (link) that points to the fact that “about half” of the earliest Boomers will file for Social Security at 62. In addition to “conventional wisdom” that this is a good idea, the article notes that many Boomers are claiming because they are afraid that the government will be reducing benefits. One individual assumed that “those cuts won’t affect people already receiving benefits.”
This could be disastrous for efforts to keep Boomers on the job. Social Security benefits are taxed, except for the lowest income level workers. To workers debating whether it is worth it to stay employed, if they have claimed Social Security early, seeing those tax dollars being taken out of each check could be the final straw in pushing them into retirement.
If such a trend becomes widespread among Boomers, their actions will only compound the entitlement crisis budget woes. As I have noted in earlier posts, the recent trend to later retirements was encouraging, because later retirements could help reduce the staggering deficits projected for Social Security and Medicare. The “bird in the hand” attitude pointed out by USA Today, could turn the trend, with disastrous consequences for GDP and government budgets.
USA Today does a great service by including interactive graphs from the American Academy of Actuaries. Rather than rely on (incorrect) conventional wisdom, workers should consider their health, and, while it is something many people have a very difficult time addressing, assess their likely life expectancy. For healthy people, taking Social Security early is an extremely bad bet. The cumulative loss in benefits reaches tens of thousands in your 80’s and hundreds of thousands in your 90’s, as is clear in the American Academy of Actuaries tables. As the article points out, “there’s a 58% chance that (for a couple) one of them will live to 90 and a 29% chance that one will reach 95.” If you, and even moreso you and your spouse, are healthy in your 60’s, why would you give away that money to the government?
A primary concern of those looking at impending old age is that of not having to be dependent. Social Security is an inflation-adjusted (most private pensions are not) monthly check that, if maximized by later claiming, can help provide at least a partial guard against dependency.
Finally, the risk of the government cutting the benefits for those already in their 60’s is very unlikely. Politicians going back to the Greenspan Commission in 1982 have stated a precedent that reducing benefits at a time when it is too late for individuals to do anything about it would be extremely unfair. Add that to the political clout of the senior citizens and cuts to those in their 60’s are just not likely to happen.
USA Today has made it a policy to regularly deal with key issues on the important subjects of population aging, and this is one of their best. We regularly check those out, but thanks to BoomerBlog for the heads up on this one.