May 23, 2012

 
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Retirement-minded Americans are getting the message: it pays to delay triggering Social Security benefits. That was one of the chief findings of a GAO study last year, and now the “take-up” rate for those who are eligible stands at a 35-year low. This is great news. Financially speaking, it means more retirees will be in better shape for the long haul.

Those taking benefits fell a second consecutive year in 2011 to 27% of the number eligible, reports the Urban Institute. That’s down from a take-up rate of 31% in 2009 and seems to re-establish a downward trend in place for the last dozen years—interrupted only by the Great Recession. Some older workers who lost jobs in the faltering economy opted to retire rather than search for another employer. They may have started collecting Social Security sooner than they had planned because of the forced nature of their retirement. That contributed to a spike in the percentage taking early benefits.

The Social Security program allows recipients to take reduced payments as early as age 62. It provides full benefits around age 66 and increases payouts for those who wait up to age 70. Each year a recipient delays, the monthly benefit rises by about 8%. That means the person who begins collecting, say, $1,000 a month at age 62 would have been able to collect around $1,700 a month had they waited eight years. The GAO concluded—and just about every financial adviser out there says—it is best to delay benefits as long as possible, assuming good health.

Delaying is especially beneficial during periods of low interest rates—like now, a National Bureau of Economic Research study found. That study also concluded that delaying makes the most sense for two-earner couples. Delaying makes more sense for women than for men, and more for couples than singles, the study found. Interestingly, there appears to be no correlation between those who delay and those who derive the most benefit from a delay. This suggests that the decision to wait for Social Security once you are eligible has more to do with financial ability than other considerations.


A big part of financial ability, of course, is working longer. Many surveys have shown that boomers see working in retirement as their salvation. Yet as we saw in the recession, that isn’t always possible. Workers past the age of 55 who lose their jobs have an especially difficult time finding employment again. But they should not give up. They bring a lot to any new job. From the Sloan Center on Aging and Work blog:

“Older workers offer many things that are unique and extremely valuable to employers, not least of which is a lifetime of experience. Today’s older workers are also healthier than older workers used to be and jobs are generally less physically demanding than they once were. Plus, Americans today are more highly educated than at any other time in history. One in four Americans currently aged 65 to 74 years has a college degree. Among the following cohort, those aged 55 to 64, nearly one in three Americans has a college degree.”

Here are some thoughts from Sloan Center bloggers on how to pursue a new job in retirement:

“One strategy that some older workers can use to navigate late-career job changes is not by changing what they do…but instead changing the industry in which they perform this work (for example, from manufacturing, where the number of jobs is in steady decline, to health care). Another strategy…is to consider a more substantial career change…fast-growing health care occupations have education requirements that consist of an Associate degree only or short-term on-the-job training. These jobs offer real possibilities for older workers who might want to make a shift to a different line of work.”

Remember, anything that helps you delay Social Security deserves a closer look. Boomers are making that decision in big numbers, and those that wait will be happy they did when they hit their 70s.