An older couple and a Social Security card (Image: Shutterstock) (Image: Shutterstock)

The oft-asked question on whether or not to retire before full retirement age or delay it longer is answered differently for most people. Those at lower income levels may have no choice and take benefits at 62, the first year social security can be claimed, while those in higher income levels may wait until they hit 70.

Benefits increase the later they are claimed, but now a paper by the Center for Retirement Research at Boston College cites key factors that may mean actuarial tables for social security benefits may be unfair due to changes to life in general: interest rates have declined, life expectancy has increased, and longevity improvement is greater for higher earners than lower ones. Based on these factors, authors Alicia H. Munnell and Anqi Chen analyzed what needs to be changed to keep social security benefits fair across the board.

(Related: 10 ‘Must Know’ FAQs on Social Security)

Today, those claiming benefits at 62 make approximately 20% less in monthly benefits than those who claim benefits at 65 (or 66 and two months if born in 1955 and after), which is full retirement age. In 1972, Congress allowed retirees to delay claims up to age 72, later reduced to 70. Today, the annual “bonus” for any delay after 65 (or 66 for those born in 1955 and after) is 8% in additional benefits per year.

In developing their own actuarial table, the researchers found that “the actuarial adjustment factors have remained constant over several decades.” But other factors have changed that impact the scheme.

First, life expectancy has increased. For example, women’s life expectancy today is five years longer than in 1956. Researchers found that those “who claim at 62 instead of 65 would increase their lifetime benefits by 14%. This smaller percentage increase suggests that a smaller reduction for early claiming would be required to keep costs constant across claiming ages.”

Second, as the cost of lifetime benefits is impacted by interest rates, which have declined since the 1980s, researchers found that “longer life expectancy and lower interest rates work in the same direction. In both cases, reducing the penalty for early claiming and the reward for later claiming would better align the costs of early and late claiming.”

Finally, there are differences in life expectancy and claiming behavior, according to earnings status. Basically, those who have “more money tend to live longer. Moreover, in recent decades, higher earners have enjoyed most of the gains in life expectancy.”

In addition to living longer, higher earners also typically claim benefits later. For example, of all those who claim benefits after their full retirement age, 40% are in the lowest lifetime earnings quartile, while 51% are in the highest.

Bottom line, according to the researchers actuarial adjustments haven’t kept up with changes in other factors. In fact, the “reduction for early claiming is too large, while the delayed retirement credit — initially too small — is now about right.” That said, the current adjustments “both between 62 and 65 and between 65 and 70, favor delayed claiming. As a result, they increasingly favor higher earners.”

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