The most popular age to sign up for Social Security is 62, with 32 percent of men and 38 percent of women born in 1946 claiming benefits at that age. Starting benefits at age 62 provides valuable retirement income as soon as possible, but it also triggers a reduction in monthly payments because retirees collect them over a longer period of time. A 62-year-old who signs up for Social Security in 2014 will get 25 percent smaller checks than if he waited to claim at age 66, his full retirement age. Here’s why many retirees claim Social Security at 62, even though it results in significantly smaller monthly payments.
Already out of the workforce. People who are unemployed at age 62 and unable to find a new job often sign up for Social Security to bring some income into the household. “Some people who did not plan to sign up at age 62 may have experienced a job loss during a bad economy, and they need the income,” says Andy Landis, author of "Social Security: The Inside Story." Those who are employed full time between ages 60 and 62 are 30 percent less likely to claim Social Security early than those who no longer work full time, according to a new Government Accountability Office report. “Many unemployed older workers struggle to find new jobs and may face unique re-employment challenges, such as employer reluctance to hire older workers or out-of-date skills. And, long-term unemployment can motivate older workers to claim early Social Security,” according to the report.
A strenuous job. People who work in physically demanding jobs including mechanics, construction, precision production, operators and farming are 55 percent more likely to claim Social Security benefits early than workers in other fields, GAO found. Those in managerial and professional jobs are 32 percent less likely to sign up early than other occupations. Workers without a college degree were also 23 percent more likely to claim early.
Have worked a long time. The 35 years in which you earn the most are used to calculate your Social Security payments. Those who haven’t worked that long have zeros averaged into their calculation, which significantly reduces payments. Those who have worked at least 35 years by ages 60 through 62 are about 38 percent more likely to claim Social Security early compared with those with shorter work histories. “For people who have gaps in their earnings history, working a little bit longer to fill in the gaps can make a big difference in your Social Security payout,” says William Meyer, founder and managing principal of Social Security Solutions, a company that analyzes Social Security claiming strategies. “If you work a little bit longer and you have a higher earnings year that can replace a lower earnings year, then it can be worthwhile.”
The financial crisis. The financial crisis of 2008 caused a spike in Social Security claiming. Those who were laid off during the wave of employment in 2009 were much more likely to claim Social Security early versus people who separated from their jobs in other years, the GAO found.
Don’t expect to live a long time. How long you think you will live plays a role in when you sign up for Social Security. The GAO found that those who expect to live to at least age 75 are significantly more likely to delay claiming benefits than those with lower expectations. “If an individual perceives they have a relatively lower chance of living to reach average life expectancy, they may believe it is advantageous to claim early so that they can receive benefits for more years before they die,” according to the report. But if you end up living longer than expected, waiting often pays off. “If you are in your 60s, your life expectancy is mid-80s, so unless you do have a reason to believe you will have a short life expectancy, on average, you will get more if you wait until 70,” Landis says.
It’s also important for married individuals to base their claiming decisions on their joint life expectancy. When one member of the couple dies, the surviving spouse can inherit the deceased spouse’s Social Security payment amount if it’s higher than what he or she is already receiving. “If you get the higher earner’s benefit as high as possible, the payout tends to go to the surviving spouse,” Meyer says.
After paying into the system for decades, it’s tempting to start your Social Security payments as soon as you can. But the decision to sign up for benefits deserves careful consideration. “The optimal claiming decision for each individual depends on many factors, such as expected mortality, employment opportunities and health,” GAO found. “While our findings demonstrate the financial advantages of delaying claiming until the full retirement age, this does not necessarily mean that everyone would be better off delaying.”