IKE TROTTER: Retirement age decision becomes more difficult
by Ike Trotter
Published: August 14,2014
WHY DO SOME 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 percent? Well, there actually are many reasons, according to new data from a 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 first reason starts with the type of industry American workers choose. A 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 percent of men in farming jobs claimed benefits at age 62, compared with just 26 percent 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. Incidentally, the study did not report findings as they might concern female farmers.
A second reason could be because of one’s employment status. Studies show there can be significant differences in and around the timing of claims.
Full-time workers were approximately 30 percent 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 percent more likely to claim their benefits early than were those with shorter work spans.
Additionally, there were other factors that contributed to early claims of benefits:
» Education: Those with less than a college degree were 23 percent 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.
All these factors being raised, there are definite 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 percent higher than households who took benefits early.
Similarly, total wealth in households where someone delayed benefits until at least full retirement age was 25 percent higher than in households with someone who claimed early.
One reason many begin drawing down social security retirement benefits before at early pertains to a growing disillusionment of social security. That being, many figure it’s better to draw down what can be had before the whole system goes broke. You won’t find that in the GAO report but, unfortunately, it’s real and, increasingly, is becoming a growing cause of cynicism to many who plan to retire in the next few years. One of these days, Washington, D.C., will have to pay notice of this.
Ike S. Trotter, CLU, ChFC is a credentialed financial adviser in Greenville. He can be reached at 662-378-9550 or firstname.lastname@example.org.
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