How to Encourage Collecting Social Security at 70

Americans would get more out of Social Security if they had access to information and programs that made it clear why they should wait until age 70 to claim their benefits, according to a report published by the Schwartz Center for Economic Policy Analysis at the New School in New York.

The report examined different types of “Social Security Bridge” strategies to incentivizes retirees waiting longer to collect benefits; outlined reasons why some seniors start drawing benefits at younger ages; and suggested some policy fixes.

More than 90% of seniors begin claiming Social Security benefits before the age of 70, despite waiting until age 70 being a better financial decision for most people, “except when someone urgently needs the money and has no alternatives,” the report stated.

The reduction in benefits that happens when claiming benefits earlier than age 70 also extends to survivor benefits, because survivor benefits are tied to the beneficiary’s age when they first claimed. Thus claiming early does not just harm one’s retirement security, but it can also negatively affect the financial wealth of dependents.

As an example, the report described a hypothetical retiree born in 1960. If the person filed for Social Security in 2022 at age 62, they would receive a $1,400 monthly benefit. The same person would receive a $2,000 monthly benefit if they waited until age 67, and a $2,480 benefit if they waited until age 70.

The report made several policy recommendations for programs that would encourage retirees to wait longer before claiming, some of which have already been proposed.

For example, the report recommended improving the communication of Social Security’s age structure, which could be done by outlining the opportunity costs of collecting early, both for individuals and for their survivors. If seniors are not generally aware that waiting to age 70 will usually be a better choice, then a bridge is unlikely to be effective.

A bill proposed in the Senate in March would do precisely this. The bill would require the Social Security Administration to inform workers of their earning history and potential benefits by mail every several years. Drafters of the bill also recommended changing the terminology of Social Security claiming ages. It suggested referring to age 62, currently called the “early eligibility age,” as the “minimum benefit age,” that age 67 be renamed as the “standard retirement age” instead of “full retirement age,” and that age 70 be renamed to “maximum retirement age” from “delayed retirement credits.”

Recognizing that the reason many collect early is simply because they do not have adequate retirement savings to put off collecting for eight more years, the report endorsed passage of the Retirement Savings for Americans Act, which proposes creating a federal automatic individual retirement account that could have a governmental match as high as 5%.

Some states are already considering programs like this, including Maryland, where its retirement savings program for people with no employer-provided retirement plan is researching adding a Social Security bridge element.

For savers that do have plans, the report recommended structuring defined contribution plan payouts such that payments mirror would-be Social Security payments from ages 62 through 69, attempting to mitigate the incentive of early collection so that retirees can get the most value out of Social Security.