Retirees lose out on Social Security

Many retirees are claiming their Social Security benefits too early and losing out on their chance to maximize benefits, according to figures compiled by the Social Security Administration. It’s latest statistics covering 2010 show that almost 44 percent of men took their benefits as soon as they were able to at age 62. Another 26 percent took benefits after 62 but before full retirement age. Only 13 percent took benefits at full retirement age and just a fraction waited until they could collect their maximum benefit at age 70. Women claimed Social Security at about the same ages and rates as men.

This is a shame, because those who claim benefits early take a big cut in their monthly payments, locking in the lower benefits for the rest of their lives. Every year past the early retirement age of 62 that a retiree delays benefits, the monthly payment grows by 8 percent. Just taking the benefits at full retirement age (for most of those currently retiring, around age 66) means an increase of 40 percent. Those who delay until the maximum age of 70 get as much as 80 percent more than the benefit they would have gotten at 62.

Social Security projects the average life expectancy for men at 82 and for women at 85. That means claiming the largest possible benefit is important so that it can provide a hedge against inflation in old age, and a source of income that won’t dry up. Only those who are in poor health or expect a short lifespan in retirement should consider early benefits. So single workers in good health should delay benefits to as late as age 70, while those with health problems should consider taking it earlier. Married couples have a tougher choice and more options, because their benefits are determined by each spouse’s earnings and they must take into account their individual life expectancies. In many cases, the higher earning spouse should delay benefits as late as possible in order to provide a larger survivor benefit to the lower earning spouse. Also, it may be prudent for the higher earning spouse to file for benefits and then suspend them to age 70, allowing them to continue to grow, while the other spouse can begin taking a benefit based on the higher earnings spouse’s benefit.