Plan sponsors hoping to offer their enrollees advice on retirement planning may want to take note of Social Security research from the American Enterprise Institute.
In an echo of similar explorations in recent years, the AEI study looked at the Social Security claims habits of retirees and found that many beneficiaries could earn substantially more by delaying payments.
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Of course, not everyone agrees with this approach. Still, AEI's Sita Nataraj Slavov and John Shoven of Stanford University say that policy changes made during the late 1990s and early 2000s increased the upside to delaying claims. Longer lives and plummeting interest rates have added to the real benefits of waiting before you begin drawing against Social Security, they said.
Data from their Health and Retirement study shows that more individuals are now delaying Social Security until after 62 compared to before 2000, but that many recipients still claim benefits upon turning 62, limiting their benefits by as much as $100,000 over the course of retirement, the authors said.
Full Social Security for beneficiaries born between 1943 and 1954 (now ages 61-70) begins at 66, but benefits can be claimed anytime between 62 and 70. Retirees can get as much as a 76 percent higher monthly check if they delay claims until the age of 70, Slavov and Shoven said.
Social Security's website has a calculator that spells out the advantages of delaying in clear terms. For those born between 1943 and 1954, 100 percent of benefits are received at age 66. A delay of one year will result in receiving 108 percent of your monthly benefit. Wait until 70 — a delay of 48 months — and the monthly check jumps to 132 percent of the original benefit.
A $1,000 in monthly benefits that would have provided $12,000 annually would jump to nearly $16,000 if delayed until 70. That's why for beneficiaries that live to and beyond typical life expectancy, the earnings add up to nearly six figures.
Data on the Social Security Administration's website shows that the number of fully insured men claiming benefits at 62 increased from 33.5 percent in 2007 to 35.8 percent in 2009. For women, claim rates jumped from 36.3 percent to 38.9 percent, signaling that the recession and unemployment influenced retirees' ability to delay claims until 70.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
