Welcome to our “Social Security Q&A” series. You ask a question about Social Security, and a guest expert answers it.
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This week, we have something a little different from the usual reader question: A look at how the government’s poor choice of words could cost you a ton of Social Security income.
Unhelpful — and costly — language
The decision about when to claim Social Security retirement benefits is important. Unfortunately, it can also be very confusing.
An individual can claim benefits between the ages of 62 and 70, and a spouse can claim spousal benefits between age 62 and what the Social Security Administration calls full retirement age (FRA). Part of the difficulty in determining the best age to claim is that it depends on individual circumstances.
What is not particularly helpful is the way that the SSA currently describes the options in your Social Security statement.
The statement shows what your benefits will be at three ages: age 62, FRA and age 70. (You can get your statement by signing up at the government’s Social Security website. Everyone should open an account so you can see the benefits you have earned.)
Many people take their benefits at the first opportunity, age 62. Very few wait until age 70. A report from the Bipartisan Policy Center recommends relabeling these options on the Social Security statement to help people better understand how their choices will affect their retirement future.
First, the center, a Washington, D.C.-based think tank, recommends changing the label “at 62” to “reduced benefit age.” This emphasizes the fact that benefits increase every year someone delays claiming, and that someone who claims at 62 will be giving up higher Social Security benefits for the rest of their life.
Second, the center recommends calling benefits at age 70 the “maximum benefits age.” People who delay claiming beyond age 70 will get no additional increase in benefits. So, it makes no sense to wait to claim beyond 70.
A huge difference
The difference between claiming at 62 and 70 is huge. For people born after 1959, monthly benefits at age 70 are 77% higher than benefits claimed at 62. For people born before 1960, the difference is similar.
The Bipartisan Policy Center also recommends changing the phrase “full retirement age” to “normal claiming age.” The rationale for this change is to recognize that the decision to retire and the decision to claim Social Security benefits are two separate decisions.
In many circumstances, someone who retires will need Social Security benefits to replace the loss of income when he or she leaves their job. But if the two can be separated, there is a real advantage in choosing to claim Social Security at an age when you can maximize your long-term Social Security benefits.
Many people are puzzled by the earnings test, which can reduce the monthly benefits you receive if you claim below your “normal claiming age” and continue working. Here, the Bipartisan Policy Center proposal is to change the name from “retirement earnings test” to “benefit-deferral feature.”
This name change describes more accurately what happens in such cases. If you lose some benefits while you continue working, your benefits will be increased after you reach “normal claiming age.” Thus, you do not necessarily lose any benefits by continuing to work — they are just deferred to a later time.
These are interesting suggestions which I believe can help you think more clearly about your claiming decision.
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You also can find all past answers from this series on the “Social Security Q&A” webpage.
I hold a doctorate in economics from the University of Pennsylvania and taught economics at the University of Delaware for many years. Presently, I am teaching at Gallaudet University.
Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.