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Should You Delay Taking Social Security?

Stan Luxenberg

NEW YORK (TheStreet) -- Worried about their financial futures, baby boomers are working longer and postponing the day when they claim Social Security. Although most people are eligible to start receiving checks at age 62, a growing number are waiting until they are older than 65.
According to a study by the Center for Retirement Research at Boston College, 50.7% of 62-year-olds claimed Social Security in 1995. By 2007, the figure had dropped to 37.6%. After spiking briefly during the financial crisis, the percentage of early claims has continued on its downward trend.
Researchers give a variety of reasons for the changes. For starters, older people are working because they are living longer and staying healthier.
Many of the older workers are women whose mothers were homemakers.
"More women are in the workforce, and they are working longer," says Matthew Rutledge, a research economist at the Center for Retirement Research.
Many employees have no choice but to stay on the job at a time when wages are stagnating and the economy is sluggish. In 1995, 23.6% of men aged 62 to 64 earned wages at full-time jobs. By 2010, the figure had risen to 33.4%. About another 20% worked part-time or were self-employed.

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The changing shape of pensions has also played a role in employment markets. In the past, workers could retire earlier because they had traditional defined-benefit plans that provided guaranteed income for life. Once they reached retirement age, many workers had little incentive to stay on the job because the rich pensions paid almost as much as wages did.
But in recent years, the pensions have vanished, replaced by 401(k) plans that come with no guarantees. Now many employees must keep working to stash more money into their retirement plans.
Changes in Social Security are also pushing people to delay retirement. In the past, 65-year-olds could claim full Social Security benefits. But to cut costs, Congress raised the normal retirement age. The full retirement age for those born from 1943 to 1954 is now 66. Those born in 1960 will have to wait until they are 67 to take full benefits.
If you are considering retirement, should you join the crowds and delay taking Social Security? That depends on host of factors.
If you need Social Security to cover necessities, you may be forced to start taking checks.
But many people have big incentives to postpone payments as long as possible. If your normal retirement age is 66 and you file a claim at 62, you will only receive 75% of the full benefit.
The amounts involved are significant. Someone who was born in 1950 and earned $75,000 annually would receive a full monthly benefit of $2,412. The monthly check would drop to $1,815 if the retiree started taking benefits at 62. By waiting until 70, the beneficiary can raise the payout by 32% and receive a benefit of $3,183.
Some people in poor health may be inclined to take benefits early. After all, there is little point in waiting if you expect to die in your 60s. People in good health must make a judgment about their life expectancies.

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If you start collecting at 70 and die in your early 80s, you would receive about the same total benefits as someone who began collecting at 62. But if you expect to live well into your 80s, then you have good reason to postpone benefits.
Most people should delay taking benefits as long as possible, says Richard Johnson, director of the retirement policy program at the Urban Institute.
Johnson says that retirees should view Social Security as an insurance policy that should be used for protection against hardship. "By waiting to increase monthly payments, you improve your retirement security," he says.


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