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What Drives the Social Security Claiming Decision?

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Why do people claim their Social Security benefits when they do? The decision often owes to social norms, according to a study published in the Journal of Financial Planning.

The study, “Understanding Social Security Claiming Decisions Using Survey Evidence,” sought to “to learn about people’s rationales for their claiming decisions and their satisfaction with past claiming decisions.”

Of the respondents who claimed their Social Security benefits within six months of reaching full retirement age, nearly half — 45.7% — said it “seemed natural.” A quarter said they stopped working at that age.

Of those who claimed benefits prior to full retirement age, 14.8% did so because they didn’t trust that Social Security benefits would not be cut in the future; 8.6% said they intended to invest the money and “end up ahead,” while just 4.6% said they were advised to by a financial advisor.

Actually, financial advisors didn’t enter substantially into the decision for any age group; among those who claimed at full retirement age or within six months of it, 10.2% said they were advised to claim at by a financial advisor, while only 2.7% of those who claimed more than six months after reaching FRA and 4.4% of those who are 62 or older and have not claimed yet said a financial advisor urged the delay.

Survey respondents offered a variety of other reasons, too, for claiming Social Security before they hit full retirement age: stopping work (38.4%), liquidity (21.2%), poor health (14.4%), and advice from friends or family to do so (6.9%).

Overall, respondents’ decisions — or their reasons for making those decisions — appeared to be unrelated to financial literacy or the rules for claiming benefits. In fact, 13% said they were not aware of the rule increasing benefits for delayed claiming, and 54.6% said they were aware of it but it had no influence on their decision.

In addition, survey results suggest that those with higher education, and those who are primary earners, are more likely to delay claiming benefits — although if one spouse retires, the other is likely to do so as well. The biggest reasons respondents gave for delaying their claims more than six months past retirement age were that they were still working or wanted their monthly benefits to grow.

However, the study also found that those who waited until full retirement age before claiming benefits were more satisfied with their claiming decisions than people who claimed early or held off. Overall, nearly 80% of people either agreed or strongly agreed that they were satisfied with their claiming decision, while those who claimed within six months of reaching full retirement age expressed the most satisfaction; more than 90% agreed or strongly agreed with the statement.

Says the report, “[A]mong those who claimed before full retirement age, the largest number did so because they had stopped working. Other common reasons for claiming early included needing the money (possibly an indicator of liquidity constraints), poor health and fear of benefit cuts. Receiving advice from family/friends or a financial advisor was relatively uncommon; and receiving advice from a Social Security Administration employee was even less so.”

The study was written by John B. Shoven, the Charles R. Schwab professor of economics at Stanford; Sita Nataraj Slavov, a professor at the Schar School of Policy and Government at George Mason University; and David A. Wise, the John F. Stambaugh professor of political economy, emeritus, at the John F. Kennedy School of Government at Harvard University.

— Check out Retirement Savings Mind Blower: Working 6 Months Longer Makes a Big Difference on ThinkAdvisor.


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