Many Americans Postpone Retirement
According to new research from the U.S. Social Security Administration (SSA), a plurality of older Americans are waiting longer to retire and collect their pension checks.
Under current rules, they can start to claim Social Security payments anytime between the ages of 62 and 70. Those who opt in earlier receive smaller payouts, but it usually evens out in the end. The use of actuarial statistics typically balances out lifetime benefits for seniors who started collecting payments at different ages. (Source: “Employment at Older Ages and Social Security Benefit Claiming,” Social Science Research Network (SSRN), November 2, 2016.)
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That being said, a shrinking proportion of older Americans are claiming their benefits at the age of 62. This is in part because more seniors are delaying retirement and choosing to extend their working careers, assertions which can be proven by the underlying data.
“From 2000 through 2015, the labor force participation rate among individuals aged 65–69 rose from 30 percent to 37 percent for men and from 19 percent to 28 percent for women,” read the SSRN report. “Since 2000, the proportion of fully insured men and women who claim retirement benefits at the earliest eligibility age of 62 has declined substantially.”
While causation and correlation aren’t the same thing, it is reasonable to assume that an old age pension typically follows retirement. In the absence of retirement, meaning that seniors continue to work, it follows that workers would delay collecting their pensions.
This phenomenon is exactly what we see right now.
However, there are other factors which can shed light on why this is happening. Benefits become available at 62, but the “full retirement age” (FRA) of workers depends on the year in which they were born. For instance, anyone who turned 62 in 2016 has an FRA of 66.
That means they will be forced to accept lower monthly payouts if they initiate Social Security payments before 2020. While this may seem like an innocuous quirk of the SSA, the report suggests that it was a deliberate move by U.S. Congress to incentivize a delay in benefit collection.
“Congress can affect the percentage of eligible individuals of a given age who claim benefits by changing the laws that govern the benefit levels available at the earliest eligibility age and at FRA (or later),” said the SSRN report. “[By] replacing the formerly universal FRA of 65 with phased increases in FRAs affecting people born after 1937, Congress increased the financial incentive to delay claiming until after age 62.”
