Social Security Disconnects

I have recently been working on a project with colleagues where we compared research-based retirement planning recommendations with what people actually do in real life. My assigned topic was Social Security and below are six things that I discovered during my research literature reviews and online searches:

¨     The Social Security claiming age decision is complex and requires an analysis of unique personal factors including health status and financial need.

 

¨     Many American households have too little wealth accumulated to retire successfully before their full retirement age or FRA (age 66 to 67, depending upon year of birth).

 

¨     To maximize lifetime Social Security benefits, workers should consider delaying their receipt of benefits to at least FRA if they foresee average or better life expectancy and it is affordable to do so.

 

¨     Marital status is a key variable. Recommendations for claiming age vary for single individuals vs. couples. A common recommendation was for men to consider delayed claiming while women claim as early as possible.

 

¨     There is a disconnect between simulation research results and “real world” practices. The most popular Social Security claiming age is 62 and, in 2017, only 4% of men and 6% of women waited to claim benefits at age 70.

 

¨     There are viable strategies to stop working and still postpone Social Security to receive larger benefits later. Options include tapping IRA balances and using reverse mortgages as sources of “stopgap” income.

 

More research is needed to determine exactly why people claim Social Security benefits when they do. Possible explanations include spousal pressure to retire, mistrust of the federal government, financial need, unemployment, uncertainty about future health status and life expectancy, and “take what you can now” attitudes.