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Claiming Social Security Early Linked to Poverty

Study finds sizeable increase in income inequality 

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Claiming Social Security as soon as you can — age 62 — has been linked with “old-age poverty” according to a recent study published by the National Bureau of Economic Research.

The study compared men who retired before and after the minimum age to collect Social Security was lowered from 65 to 62 in 1961. It found that lowering the age reduced the beneficiary's average monthly income and increased the poverty rate for male-headed households. “Claiming earlier reduced an individual’s annual benefits relative to what they would have been if the individual had claimed at the normal retirement age, which was then 65,” the study said.

The most popular age at which people start collecting Social Security benefits has been and remains 62; currently, 34.3 percent of recipients claim benefits then. Yet, as the full retirement age has increased from 65 to as high as 67 today (depending on your year of birth), you have more to lose from claiming benefits at 62.

Why? If you claimed Social Security at 62 when the full retirement age was 65, your benefit would be 20 percent lower. However, if your full retirement age is 67 (as it is for those born in 1960 or later), your benefit would be 30 percent lower, said Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology and coauthor of the study, Early Social Security Claiming and Old-Age Poverty, circulated in the August issue of The NBER Digest.

The introduction of early claiming raised the poverty rate for the elderly by about one percentage point, according to the study. “There was a sizeable increase in elderly poverty and income inequality,” the study said.

The change in the claiming age meant an average decrease of 1.5 percent in Social Security income for male-headed families. The change was linked with a decrease in total income for the poorer half of households.

Close to 9 out of 10 Americans age 65 and older receive Social Security benefits. Social Security benefits represent approximately 33 percent of the recipients’ income.

Among elderly Social Security beneficiaries, 48 percent of married couples and 69 percent of unmarried individuals receive 50 percent or more of their income from Social Security benefits.

Why do the largest percentage of Americans still claim at 62? Gruber said some are ready to leave their jobs at that age and jump at the earliest possible opportunity to claim benefits.

“Some people got into poverty because they took it early,” Gruber said. “It’s a hard calculation for people.” Some people want to trade leisure for early benefits.

His advice: “Look at your benefit statement every year. It’s important to study that, not just leave your job at 62” and claim the benefits.

Instead, Gruber said, begin thinking about claiming Social Security when you are 62, then compare that amount to the amount you would receive if you wait even one more year. Then compare it to the amount you would get at age 66 or 67, whichever is your full retirement age.

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