I’ve known for a long time that the most common age for both men and women to claim Social Security benefits is just after the age of 62, which is the earliest age available. In fact this is the slide that I show in the Maximizing Social Security class:
A majority of people have taken their benefit by the time they’ve hit full retirement age. Less than 5% wait until after full retirement age.
I have wondered occasionally why people decide to take early, considering the benefits of delaying.
I did a Google search for academic research on the subject and found a very good paper by the National Bureau of Economic Research. If you’d like to read the paper summary you can use the link below:
http://www.nber.org/digest/oct17/w23729.shtml
This study provided another dimension in chart form that gave some additional insight.
The chart provided indicated that a majority of retirees took their Social Security within two years of their retirement date.
So if you put both charts together you get this logic:
- Most people take their Social Security benefit early
- Most people take their Social Security within two years of retirement
THUS
- Most people take their Social Security early because they just retired and they “need the money”
The paper actually gave “needing the money” as one of the primary reasons that respondents took their Social Security at the age that they did. Originally I interpreted the term “need the money” in a negative sense as in they were in a financial hardship. But I think it’s better to define the phrase “need the money” as “I don’t have any work income coming in anymore and I need to replace it with something.”
The second item I noted on the research paper deals with reasons that individuals delayed taking Social Security.
They noted that those with assets in 401(k)s and IRAs were more prone to delaying their Social Security. In other words, they had a financial bridge between retirement and a later Social Security claiming age.
It makes a ton of sense that those with few financial resources would have no choice but to turn their Social Security on after they stop working since they could see no other way of making their retirement work.
What’s interesting to me, ultimately, is that not everybody with a financial bridge to allow them to delay taking their Social Security to a later age ACTUALLY DO delay..
It would be really beneficial to be able to interview people in that circumstance and ask them why they decided to take it early.
One reason that the paper supports that individuals took Social Security early is that they feared the solvency of the Social Security system. So even if an individual has a financial bridge to delay, it may be likely that they don’t see the benefit of increased payments if they are fearful of what may happen with Social Security in the future.
A final anecdotal reason from multiple conversations that I’ve had as to why individuals take Social Security earlier rather than later deals with what I call “break even” analysis. The individual determines the age at which they will begin to get more cumulative lifetime Social Security benefits by waiting and asking themselves if they think they will live that long. I certainly understand the mentality…but for those who are married, it ignores the impact of claiming early on the surviving spouse benefit as well as beneficial tax reasons for delaying.
I do believe that there can be justifiable reasons to take Social Security early rather than delaying it.
What I don’t believe, unfortunately, is that most individuals who do claim early who can afford to delay have completely thought through or analyzed the best option and alternatives.
If you have any questions please feel free to contact me.
