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Claiming Social Security Early

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GAO Report Reveals Why People Claim Social Security Benefits Early

Why would people choose to claim Social Security retirement benefits at the earliest possible age of 62, rather than waiting until their full retirement age (66 to 67 for anyone born in 1943 or later), when doing so would reduce their monthly benefit by as much as 30%? There are many reasons, according to a recent General Accounting Office report titled, “Challenges for Those Claiming Social Security Benefits Early and New Health Coverage Options,” including work-related and demographic factors.

The blue-collar blues

The study compared workers in a variety of positions and industries–farming, construction, sales, professional, and managerial, among others–and found that blue-collar workers were much more likely to claim early retirement benefits than others. This may be due to the fact that blue-collar work is typically more physically demanding, and therefore progressively harder as people age.

For example, 54% of men in farming jobs claimed benefits at age 62, compared with just 26% of men in managerial positions. Eight out of 10 male farmers claimed their benefits before reaching full retirement age, compared with a little more than half of all managers, both male and female.

Employment status impact

A person’s employment status also revealed significant differences in the timing of claims. Full-time workers were approximately 30% less likely to claim early. By contrast–and perhaps not surprisingly–those who said they were retired or unemployed were more likely to tap their Social Security early.

Interestingly, those with long work histories–at least 35 years of earnings–were 38% more likely to claim their benefits early than were those with shorter work spans.

Other factors

The study revealed several other factors that contributed to early claims of benefits:

Education: Those with less than a college degree were 23% more likely to claim early than were those with at least a college education.

Marital status: Widowed individuals were generally more likely to claim their benefits before reaching full retirement age compared with married, divorced/separated, or partnered couples.

Life expectancy: Those who thought they had a strong chance of living past age 75 were significantly more likely to delay their benefits when compared to those with lower longevity expectations.

Financial benefits of waiting

According to the GAO’s research, delaying Social Security resulted in a stronger financial position in retirement. Households with an individual who delayed benefits until at least full retirement age received a median income that was 45% higher than households who took benefits early. Similarly, total wealth in households where someone delayed benefits until at least full retirement age was 25% higher than in households with someone who claimed early.

Blue collar workers are among the groups that are more likely to claim Social Security benefits prior to reaching full retirement age.

For more information on these findings and others, including how the Pension Protection and Affordable Care Act changes affect health coverage options for those who claim early, view the complete study at www.gao.gov.

IMPORTANT DISCLOSURES

Financial Planning and Investment Advice offered through STA Wealth Management (STA), a registered investment advisor.

STA does not provide tax or legal advice and the information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

As always, a copy of our current written disclosure statement discussing our services and fees continues to be available for your review upon request.

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