Social Security Claiming and Psychology

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It’s common for people to begin collecting their Social Security benefits soon after they turn 62, ignoring the financial planners and retirement experts urging them to postpone and increase the size of their monthly checks.

A new study has uncovered four powerful psychological traits that influence this decision: the individual’s expected longevity, his fear of loss, whether he perceives the Social Security system as fair, and patience.

The study surveyed some 3,000 people, primarily in their 40s and 50s.  This is a good age to ask about Social Security, because claiming the benefit is a few years away, “but they’re thinking more about it,” researcher Suzanne Shu said when presenting the findings at an August meeting of the Retirement Research Consortium in Washington.

In an online survey, Shu, who is from the University California at Los Angeles, and John Payne, from Duke University, posed a series of questions designed to understand the psychology of the individuals they were studying.  They also asked when they planned to claim their Social Security and then determined which psychological traits were linked to those who said they planned to file early.

Four influences on claiming came out of their preliminary findings:

Fear of loss. People who have a stronger aversion to financial loss also tended to say they would claim earlier.  To them, the researchers said, a delay in receiving their benefit checks “looks like a potential loss.”

Life expectancy. It’s intuitive that an individual who doesn’t expect to live as long might want to start his benefits as soon as possible, and that’s what the analysis concluded.  The researchers found that 10 years added to one’s life expectancy will delay a Social Security filing by six months.

Fairness.  The individuals surveyed were asked whether they agreed with several statements about Social Security, such as “I feel that I have earned these retirement benefits.”  The more strongly an individual agreed with such statements, the more likely they were to say they would file for their benefits early.

Patience. This finding was self-explanatory: the more impatient an individual, the more likely he is to claim early.

Future retirees deliberating about when to start collecting their Social Security should recognize that these psychological factors may be at work.

Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed do not represent the opinions or policy of SSA or any agency of the federal government.

John in SC

For most of us boomers, if you live to be 79 or 80, the total amount of money you receive is the same no matter when you claim (62, FRA, or 70).

If you expect to die before 79 or 80, claim earlier. If you need the money or are in declining health or don’t have the longevity gene in your family, then claim as soon as you can.

If you expect to die after 79 or 80, or you want to make sure you leave your surviving spouse with as large a benefit as possible, you’ll do better to claim later (providing you can afford to wait).

It is an important decision…but it’s not rocket science. A little common sense will go a long way in making the best decision for YOU.

John in SC

Kerry Pechter

The debate over Social Security claiming shows that retirement income planning is much more personal and requires much more customization than saving for retirement. A question for many people may be: If I retire at 65, is it worth spending my 401(k) assets over the next five years in order to capture the higher Social Security payment at age 70? Many people will say, “I’ll live on the government’s money before I dip into my own.” But in today’s interest environment, delaying Social Security is seen by many as the more rational option, all else being equal (which it never is).

Ted Leber

I think we are wise to look on delaying claiming Social Security as longevity insurance. After all, death is a crap shoot.

Chris Draughon

According to the Social Security Administration, an average male age 65 today will live to 84 and females to 86. This is a different experience than these folks parents who retired at 65 and finished retirement at 72. It is hard for people to envision a 30 year retirement, but if they can they are more likely to delay until at least their full retirement age.

Ted is right – Social Security should be considered longevity insurance.

Dave G

The factor missing in most “cross over” calculations is the impact of taxes. Add to this a large number of seniors who are surprised to learn of this “stealth tax.” So simply calling the cross over at about 12-years is insufficient.

This particularly impacts modest- to middle-income folks who draw benefits but keep working. You have to factor in any benefit reductions prior to full retirement age for working, plus impact on meeting either the 50 percent or 85 percent threshold for taxation of the retirement benefit.

There is no better “annuity” value today that you can buy better than delaying your Social Security retirement benefit.

Ken Pidcock

What Ted said. Yeah, you could lose the bet and leave your survivors with less of your savings. But if you live long, you’re going to want that inflation-protected income.

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