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Is the Reward for Postponing Social Security Too Great?

Category: Social Security

December 11, 2019 — You can always expect a lively debate on this subject: should you wait to claim Social Security, or take it as early as age 62? No matter your opinion, it is indisputable that claiming later than your Full Retirement Age (66 or later) provides an attractive 8% increase per year yield (plus COLA). Now a new study suggests that the 8% per year reward for waiting is too high, and the penalty for claiming early is too severe. Note: Shoutout to Maimi for bringing this study to our attention!

The study, “Are Social Security’s Actuarial Adjustments Still Correct“, comes from the Center for Retirement Research at Boston College. When Social Security started to allow beneficiaries to claim early or delay to age 70 it used actuarial adjustments designed to keep lifetime benefits constant for an individual with average life expectancy. In other words, no matter when you take your Social Security benefits, the odds are that you will receive the same amount of money.

The study’s authors, Alicia H. Munnell and Anqi Chen, argue that much has changed since the option to claim early was created. For one, average life expectancy is longer. In 1983, when the scheduled increase in the delayed retirement credit was enacted, life expectancy at age 65 was 17.0 years. Now, life expectancy has increased to 20.4 years. The effect is that Social Security is paying a higher amount for 3.4 years longer than it planned for in 1983. The study suggests that the credit for waiting should be smaller than 8%.

Another key factor is lower interest rates. In the 1980’s interest rates approached 10% at times, whereas today a 2% rate on a CD would be great. When considering today’s lower interest rates, the study suggests that the penalty for claiming early should be smaller (the credit for delaying appears about right).

Finally, the study’s authors suggest that a factor related to the type of person who delays taking Social Security needs to be considered. Higher earning individuals are more likely to delay taking their benefits, and they tend to live longer than folks who make less money. To keep the system fair for all taxpayers, the credit for delaying could be reduced.

Bottom line

This study is an academic one, and who knows how policy makers will react to it. They might make future adjustments to the formula for reducing the penalty for early claimers, tamp down the credits for delaying, or do nothing. Only time will tell. In the meantime, the study suggests that because of increased longevity and lower interest rates, there is a bigger than planned penalty for taking Social Security benefits early, and a larger bonus for delaying than the underlying formulas called for. Self-interest suggests that you take advantage of this anomaly while you can, unless you want to save Social Security a few dollars.

Comments? Does this study change your thinking about when to claim? Let us know in the Comments section below.

Posted by Admin on December 10th, 2019


  1. I agree that the 8% seems like a great return for deferring, when market returns are so much less than they were when numbers were originally established.

    We’re all playing a lottery…some people “win” a bonus by waiting & others lose out big time by dying before ever getting their benefit. I’ve assumed the system was stacked in favor of the House by actuaries, and the SS program actually benefits by seeing more deaths than pay-outs among the population that chooses to defer.

    It’s worth noting that there’s another loophole that can skew the break-even calculations. As a widow, I receive my husband’s full benefit instead of taking my own benefit. My own benefit at full retirement age was higher than my widow’s benefit. By delaying switching from the widow’s benefit to my own benefit & taking advantage of the 8% annual increases, I will be entitled to a benefit of about $3,600+/mo at 70 (vs my $2350 widow’s benefit). My family is long-lived, so my odds of passing my break-even age for deferring are pretty good – especially when the break-even age is reduced substantially by having received the widow’s benefit. Whew. This is complicated, but my point is that we’re all gambling when making these decisons.

    by Kate — December 11, 2019

  2. 8% is a great return and probably should be reduced a bit, but not so much that is stops people from delaying taking it in favor of signing up at FRA and then investing the SS payments themselves. What if there was no top age to start taking SS and that it will continue to grow each year? If the person ever needs it, perhaps to help pay for long-term care, it will be there and be there and be big but if they are mercifully able to avoid LTC the $ will stay in the system.

    by jean — December 11, 2019

  3. I haven’t read the study but perhaps there are a couple of things that the authors didn’t take into account. I recently read that the mortality rate in the U.S. is actually going up in recent years. Mostly due to opioid addiction and increased suicides. True, this may not affect the ones who are financially able to delay receipt of SS but it is an indicator that, at least for now, fewer people will be around to actually receive benefits.

    The other factor that may not have been considered is that more people are taking benefits as soon as they can either because they have to in order to survive or because they believe that the program won’t be able to provide a full benefit for them when they reach their full retirement age or beyond. With more people claiming early, it follows that fewer will be claiming at full retirement age or later.

    The full retirement age for those born in 1960 or later is currently 67. That may change as we continue to move away from a manual labor based economy to one that allows more people to stay in the work force for longer. If the maximum delayed claiming age isn’t raised, the advantage in additional SS benefit will gradually decrease as people continue working either because they want to or because they can’t afford to live on SS without a separate pension or sufficient personal savings.

    by LS — December 11, 2019

  4. I was going to wait to claim but then I realized that no matter how long I wait I’ll never get to the current amount the spouse receives. Financially it might be a little painful taking it before FRA but isn’t time spent together more precious. So planning on retiring at age 62.

    On a side note I agree there may be less total people to claim it with obesity rates. And I also feel the government needs to up the amount of salary that pays into SS. Salaries and inflation always increase – shouldn’t this amount be increased as well!

    by Vicki — December 11, 2019

  5. The salary cap for workers paying into SS does increase every year. For example, the maximum wages/salary subject to FICA (SS) taxation in 2020 is $137,700, up from $132,900 in 2019. In 2018 it was $128,400. In 2000 it was $76,200. Additional information and explanation can be found in Wikipedia under “Social Security Wage Base.”

    by Clyde — December 12, 2019

  6. My takeaway from the study is that there is inequity in the system that needs to be addressed. People who are not in the financial position to wait(mostly single people) are penalized more than I had thought about. I did not wait until FRA, because I needed the money and with my own shortened life expectancy due to health issues, it did not make sense. I do hope they adjust the penalty to align with the actuarial tables so that people who are financially better off do not unfairly benefit by waiting. These studies are important to inform policy makers.

    by Maimi — December 12, 2019

  7. As I approach 70 in 4 months, and reflect back on my life: I have seen way too many people – family, friends, and co-workers die before reaching 70. When you are young you lose people because they just do crazy sh!t. I believe most people must ask themselves how did they survive their youth. As you age you witness the total devastation of cancer, heart disease, and strokes of people in their 50’s and 60’s. I personally find it mind boggling as I reflect back in time.

    by Bubbajog — December 12, 2019

  8. This may not be the right place for this question, but I am now working while collecting SS, so I am still contributing to SS. What happens to that money. My SS checks did not go up.

    by Maimi — December 13, 2019

  9. Miami, your SS check may not go up even if you are working now. SS counts only your 35 highest earning years in figuring your monthly benefit. If any year you are working now does not bring in enough income to move into your top 35 years, you would see no increase. From the SS website: “Social Security uses your highest thirty-five years of earnings to figure your benefit amount when you sign up for benefits. If you work after you begin receiving benefits, your additional earnings may increase your payment. If you had fewer than 35 years of earnings when we figured your benefit, you will replace a zero earnings year with new earnings. If you had 35 years or more, we will check to see if your new year of earnings is higher than the lowest of the 35 years (after considering indexing). We check additional earnings each year you work while receiving Social Security. If an increase is due, we send a notice and pay a one-time check for the increase and your continuing payment will be higher.“

    by Clyde — December 13, 2019

  10. Maimi:

    I work three days per week and my SS went up a whole $3.00 per month last year! The money you earn should be factored into your SS benefit. It may depend also on how much you earn. Are you working part-time or fulltime?

    by Jennifer — December 13, 2019

  11. Interesting. I work full time and I have a feeling the additional contributions won’t help my SS benefit. So, I am just throwing more money into the system for others. I am divorced, so I cannot leave survivor benefits to any survivor, which is another inequity. I think that SS benefits should not be withheld unless an elderly worker can derive some benefit. It gets to the point where there is a disincentive to work, which is wrong.

    by Maimi — December 14, 2019

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