It’s no secret that American workers face a major – and very real – retirement crisis. Wealth inequality and workplace changes have all but kicked-out two of the legs of the traditional retirement stool: pensions and private savings – both of which are at historic lows. More and more retirees have come to rely on the third leg of the stool, Social Security, for most of their income. (The average monthly Social Security benefit in Rhode Island is about $1,430 or some $17,000 per year, only a few thousand dollars above the federal poverty line.) Even with Social Security, nearly eight percent of the state’s seniors live in poverty. The good news is that workers can increase the size of their future Social Security checks by delaying retirement.
Delayed claiming past the early retirement age of 62 results in bigger monthly benefit checks for life. Waiting until after the current full retirement age of 66 yields even greater gains – up to 44 percent more than early claiming. But too few Rhode Islanders are taking advantage of this delay-and-gain strategy. The average retirement age in Rhode Island is 64 – resulting in reduced Social Security benefits for those workers. (Claimants’ permanent benefits are cut by roughly six percent for every year before the full retirement age that they file for Social Security.)
Unfortunately, nearly half of workers nationwide are unaware of the financial advantages of waiting to claim Social Security until at least the full retirement age – or the penalties for filing early. That is why our organization has launched “Delay and Gain,” a public education project to help older workers understand what's at stake.
Traveling around the country, I have often heard from retirees who don't have enough money to keep up with expenses. Meanwhile, many of those still working tell me they plan to retire early simply because they are “sick and tired of working.” I respond that they will be even more sick and tired of not having enough money in old age. The cost of essentials like health care, housing, utilities and groceries are rising every year. People are living longer, meaning seniors must survive on their fixed incomes even longer. Rhode Island’s future retirees will likely need the extra cash that delayed claiming can provide.
Let’s say that a worker’s monthly Social Security benefit at the full retirement age (FRA) of 66 is $2,000. If she chooses to claim early at age 62, her monthly benefit will be reduced to $1,500 – and will remain at that level (adjusted for inflation) for life. However, if the worker waits to claim until age 63, her permanent benefit jumps to $1,600 per month. If she delays claiming until 64, the benefit is $1,766. If she defers until 65, it climbs to $1,900. Of course, if she claims at the FRA of 66, the worker realizes her full monthly benefit of $2000. Workers can use the Social Security Administration’s online calculator to determine benefit amounts at different ages.
Some workers claim early because they wrongly believe Social Security won’t be there for them in the future. Other older workers try to calculate their "break even" point on lifetime benefits, thinking that they'll receive a higher total payout over the years by claiming early. This is not usually a winning strategy because they are choosing a smaller monthly payment – sometimes hundreds of dollars less – trying to game a program that isn't designed around odds. Social Security is not an investment vehicle; it’s an income insurance program in a country where life expectancies are rising and so are costs. People who reach age 65 today can expect to live nearly 20 more years.
Of course, not everyone can wait to claim benefits until full retirement age. Poor health, physical limitations, workplace changes, caregiving demands and unemployment are a few of the factors that can make it difficult to wait to file for Social Security. But for those who are able to continue working until at least their full retirement age, it pays to Delay and Gain.
Max Richtman is president and CEO of the nonprofit National Committee to Preserve Social Security and Medicare. He is former staff director of the U.S. Senate Special Committee on Aging.