By Mark Miller
CHICAGO (Reuters) – Good things come to those who wait, the old saying goes. And more Americans are getting the message when it comes to claiming Social Security benefits.
The number of near-retirement workers planning to take Social Security benefits as soon as possible has fallen sharply, according to a new survey by Fidelity Investments. Just 28 percent of 61-year-olds say they plan to file for their benefits at age 62 – the first year of eligibility. That stands in marked contrast with 2008 – the last time Fidelity conducted the survey – when 45 percent planned to file at 62.
The shift reflects an improved economy, according to Ken Hevert, senior vice president of retirement at Fidelity. “When we did this survey in 2008, we were getting phone calls regularly from folks whose retirement day had come much sooner than expected, and they were struggling to identify their Plan B.”
But the changed attitude about claiming may also reflect heightened public awareness of the challenges posed by rising longevity. Among working Americans, 60 percent say they are “very or somewhat likely to live to age 85,” according to survey research by the Employee Benefit Research Institute. Persistent reminders in the media and from many financial advisers about the value of later filing also is likely seeping in to public awareness.
For many households, Social Security is the only source of guaranteed lifetime income, and delayed filing can boost that income significantly. Benefits are calculated using a formula called the Primary Insurance Amount (PIA). Although you can claim benefits as early as 62, by waiting until your full retirement age (currently 66), you will receive 100 percent of PIA.
Every 12 months that you delay beyond that point, until age 70, tacks on an additional 8 percent. And benefits are protected from inflation by the program’s annual cost-of-living adjustment.
The PIA formula is designed to be “actuarially fair,” meaning all claimants should come out roughly equal no matter when they claim. But delayed filing often works out in favor of those who are patient – especially for better-educated, healthier households.
Among U.S. women with average health, 31 percent will live to 90, and 12 percent will make it to 95, according to Social Security Administration mortality data. Among women whose health is better than average, 42 percent will live to 90, and 21 percent will survive to 95.
Married couples have significant opportunities to maximize household benefits by coordinating their claims. In some cases, couples benefit when the lower-earning spouse files early while the higher-earning spouse waits to claim, earning delayed credits.
THE KNOWLEDGE GAP
Fidelity’s findings align with other data pointing to the rising popularity of later claiming. The Social Security Administration reports that 33 percent of men claimed benefits at age 62 in 2015, compared with 50 percent in 2005; likewise, 39 percent of women claimed at 62 in 2015, compared with 54 percent in 2005.
But the Fidelity survey also suggests that most Americans do not have a good understanding of the Social Security rules. Although 67 percent of pre-retirees say they are confident in their knowledge about Social Security, many offered incorrect answers to questions about the claiming rules.
For example, only 26 percent know their own full retirement age (FRA). And 38 percent of pre-retirees think it is possible to change claiming strategies throughout retirement – say, claim early at 62 and then change to their full retirement age benefit later on.
In fact, once a claiming decision is made, it is irreversible – although it is possible to shift to a higher spousal or survivor benefit.
Chalk up some of that to inattention – but it is also the result of Social Security’s complex rules and the challenge of finding good claiming help.
“We hear regularly from people that they don’t know where to turn for help on this, other than the Social Security Administration or friends who are doing their own homework,” said Hevert.
A growing number of financial planners are learning to advise clients on Social Security claiming. And online software tools can be very useful in identifying a strategy. Some workplace retirement savings plans now include third-party financial advisory services, and useful Social Security claiming help often is built into these services. Several companies offer help for a small fee that often comes with a one-on-one consultation (http://bit.ly/20nstil).
Fidelity introduced a robust Social Security analytics tool for customers two years ago. This week, it launched a free tool for the public that provides a basic illustration of the likely variations in lifetime and monthly benefits at various claiming ages (http://bit.ly/2qfKem9).
No matter where you seek help, the baseline information you will need is contained in the annual statement that the SSA prepares for you. The statement tells you how much you can expect to receive if you file at your FRA, at age 70, or at age 62. Mailings of the statements have become sporadic due to budget cuts, but you can always access your statement – and download it as a PDF file – by creating a My Social Security account on the SSA website (http://bit.ly/20nvsaI).
(Editing by Matthew Lewis)