Why the Early-Retirement Trend Reversed in 2011

Study of Social Security claiming patterns shows return to 15-year pattern of later retirements.

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Americans sharply reduced their rate of claiming Social Security benefits last year, thus reversing—at least temporarily—one of the more dramatic retirement consequences of the Great Recession. According to an analysis by the nonprofit Urban Institute in Washington, D.C., the Social Security claiming rate hit a 35-year low in 2011 after soaring 25 percent during the 2007-2009 period.

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Most experts viewed those high claiming rates as evidence that older workers were hammered by the recession and rising unemployment. As a result, people felt forced to file for early Social Security benefits prior to reaching the traditional retirement ages of 65 or 66, which is now defined as the program's full retirement age (FRA).

That decision meant many retirees felt they had no choice but to give up the much larger future Social Security payments that are available to those to delay claiming benefits until they are older. For people now approaching retirement, monthly Social Security payments for those who defer claiming benefits will increase roughly 7 to 8 percent each year between the ages of 62 and 70.

"Between 2007 and 2009, retirement awards increased 25 percent," said the analysis by Richard Johnson, a senior fellow at the Institute and head of its retirement policy program. The increase was driven in part simply by the baby boom, as rising numbers of people began reaching age 62, the earliest age at which Social Security benefits can be taken.

"More importantly," the Institute said, "older Americans were more likely to claim Social Security retirement benefits in 2009 than in previous years as the labor market weakened and the unemployment rate of workers age 55 to 64 rose to 6.6 percent, more than double the 2007 rate."

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In 2009, 3.2 million people began collecting Social Security. The number of new claimants has since dipped only slightly, to 3.1 million in 2010 and 3 million in 2011. However, the shift in the claiming rate has been much more dramatic. It measures the share of adults age 62 and older who began benefits in a year as a percentage of all such people who have not yet claimed benefits.

The Institute said this "take-up rate" rose from 27.1 percent in 2007 to 28.8 percent in 2008 and 30.8 percent in 2009. It dipped to 28.3 percent in 2009 and declined further to 26.9 percent in 2011, its lowest rate since 1976.

While not knowing the exact reasons why people changed their claiming behavior, Johnson says the pattern has returned to a longer-term trend that began in the early 1990s. Since then, he says, there has been a sustained rise in retirement ages and a related deferral of claiming Social Security benefits.

Several major changes in Social Security rules supported the trend, he says. The last major reform of Social Security raised the full retirement age from 65 to 66, but the changes didn't occur until the 2000-2005 period. Also, in 2000, Congress approved a new law that took away benefit reductions for outside income earned by people who had reached full retirement age. Lastly, the annual credits for delaying retirements (also included in the 1983 reforms) were not fully implemented until 2005, Johnson says.

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"People have been working longer since at least the early '90s," he says, "and this pattern was just interrupted by this huge spike in unemployment" caused by the recession. In an earlier study of this trend, Johnson says, the share of 62-year-olds who claimed benefits early fell by about 10 percentage points for people born between 1940 and 1944 compared with those born 10 years earlier.

People may be deferring benefits again because the economic recovery has given them a more optimistic view of their earnings prospects. Also, people who already filed for early benefits in the 2007-2009 period had already been backed out of the number of potential claimants by 2010 and 2011.

"The more pessimistic interpretation of these findings is that people have recognized that they can't afford to retire," Johnson says. "They may be scared to retire."