The Recession May Be Causing Baby Boomers to Claim Social Security Early

Applications for retired workers are up 25 percent this year

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Most baby boomers say they plan to work during the traditional retirement years. But that doesn’t mean they’re able to find work. The Social Security Administration reports a surge in early retirement claims this year.

Applications for retired worker benefits are up 25 percent so far this year compared to fiscal year 2008. The Social Security Administration was expecting a 15 percent boost in applications this year due to aging baby boomers and women claiming based on their own working record and not a spouses. SSA attributes the rest of the increase to the economy. “So far in fiscal year 2009, retired worker benefit applications are about 8 to 9 percent higher than had been expected in the absence of a recession,” says Stephen Goss, chief actuary of the Social Security Administration. “It is likely that total retired worker benefit applications will turn out to be about 5 to 10 percent higher during fiscal year 2009 than had been expected in the absence of a recession.”

Signing up for Social Security right away at age 62 can be an immediate source of income for laid off older workers faced with decimated retirement portfolios and shrunken home values. But payouts are permanently reduced for workers who sign up before their full retirement age. (For baby boomers turning 62 this year, the full retirement age 66.) Benefits are diminished by 25 percent for people who sign up at age 62 in 2009, which could mean less money over your lifetime if you live a long life. SSA says the increase in Social Security applications for retired worker benefits will increase total benefit payments in the near term. But the lower check amounts for early claiming mean the uptick in applications won’t have a long term impact on the system. “There will be no significant affect from this near-term increase in benefits on the long-range solvency of the Old-Age and Survivors Insurance program,” says Goss.

Claiming Social Security early does not necessarily mean these seniors have exited the workforce. The average number of Americans ages 60 to 69 who were employed or seeking employment during the first half of fiscal year 2009 was 6.5 percent higher than for the same months in 2008, according to the Bureau of Labor Statistics. That’s 2 percent higher than the Social Security Administration had predicted in the absence of a recession. “This rise might be, in part, a reflection of a desire of some older workers to work longer to rebuild the level of their personal retirement assets,” says Goss.

It is possible to work and receive Social Security checks at the same time, but there is a penalty if you earn too much. In 2009, workers below their full retirement age can earn up to $14,160 without penalty. After that, 50 cents of each dollar earned is deducted from your benefit payments. The year you reach your full retirement age, working while claiming Social Security benefits becomes a better deal. Between January of that year and the beginning of the month in which you birthday falls the earnings limit increases to $37,680. Above that amount, 33 cents of each dollar is deducted from your Social Security payments. After your birthday passes there are no additional penalties for working in retirement. Wages, bonuses, commissions, and vacation pay count toward the income caps. Pensions, annuities, investment income, interest, and government or military retirement benefits don’t apply to the earnings limit. You also don’t lose the money deducted from your Social Security checks forever. After you reach full retirement age, your benefit amount will be recalculated to reflect your additional earnings.

Tell us, has the economy caused you to sign up for Social Security earlier than planned?