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Boomer unemployment triggering Social Security applications

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Struggling to bridge income between jobs, an increasing number (more than expected) of eligible baby boomers are signing up for Social Security.

Social Security applications are up 25 percent, according to a Fox Business report Monday. Fox says the Social Security Administration’s 2008 estimate of a 15 percent increase within the first six months of the government’s fiscal year (based solely on the number of people eligible for benefits this year) didn’t take into consideration the possibility of an economic slowdown and a huge unemployment rate.

“Dan Muldoon, a research associate at the Center for Retirement Research at Boston College, says this doesn’t necessarily mean that career-driven Boomers are hanging up their laptops and BlackBerrys and heading for the golf course,” writes Gail Buckner for Fox Business. “He suggests it might be just a case of needing some extra cash until a new job is found. ‘They might be looking for work, but if unemployment insurance runs out, it’s easy to claim Social Security if you’re at least age 62.’”

But just because boomers can sign up for benefits doesn’t necessarily make it the correct thing to do, Buckner continues. A recent report from the SSA predicts a revenue shortfall by 2037, four years earlier than expected.

“According to Stephen Goss, the chief actuary, ‘the increase in applications… will increase total benefits payments in the near term.’ However, he adds that ‘there will be no significant effect… on the long-range solvency of the… program.’ The reason? The ‘earlier start of benefits… results in [a..reduction in the monthly benefit level for life.’”

Still Buckner says receiving benefits at an earlier age – say at 62 instead of age 65 – may not be the wisest choice. The amount a beneficiary receives is based on the assumption that he or she is going to live an “average” length of time. Benefits, if received earlier in a retiree’s life, will permanently be reduced but will be spread out through their lifetime. However, if someone lives longer, this may significantly diminish their purchasing power at the end of their lifetime.

“A study by the Center for Retirement Research found that, in fact, ‘households incur substantial losses as a result of early claiming,’” Buckner writes. “According to the authors, there is an ‘optimal’ age at which you should apply for Social Security benefits that depends upon, for instance, your marital status and your earnings record. They conclude that ‘single individuals and married men should claim benefits between 67 and 70.’ On the other hand, a married woman should claim benefits earlier than a single woman.

“Of course, all of this analysis assumes you have a choice about whether or not you begin receiving Social Security benefits. Obviously, if you need the money to make ends meet, it’s a no-brainer. Sign up ASAP.”