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New Issue Brief: Policy Changes Can Help Seniors Make Better Social Security Decisions

Washington, DC – A new issue brief released today by the Bipartisan Policy Center examines why many older Americans make suboptimal decisions about when to claim Social Security and how policy changes could help them claim at the right age for their circumstances.

The plurality of Social Security recipients claim reduced benefits when they first become eligible at 62 years old, several years before what’s called the Full Retirement Age (currently rising from 66 to 67), and eight years before their maximum benefit—meaning they lock in a monthly amount lower by hundreds of dollars than they could have received by claiming later. The typical beneficiary aged 65 or older relies on Social Security for at least half of their income, meaning that for many, claiming benefits too early could threaten their financial security later in life.

“The question of when to claim Social Security benefits is a pivotal financial decision for older workers, yet far too many lack a thorough understanding of the tradeoffs,” said Shai Akabas, BPC’s director of economic policy and one of the brief’s co-authors. “This is an obvious place where cost-effective changes to public policy could dramatically improve retirement outcomes for millions of Americans.”

Changes to how Social Security presents information to older Americans could help facilitate better decision-making. For example, the issue brief notes that using the term “early eligibility age” to describe age 62 does little to explain that claiming then permanently locks in that lower benefit, while claiming later would offer increased monthly benefits for life. Misconceptions about the Retirement Earnings Test, meanwhile, create considerable confusion about continuing to work while claiming benefits.

The issue brief suggests that the Social Security Administration could reinstate annual paper benefit Statements to explain Social Security’s rules and the consequences of the age at which someone claims. Better online tools and in-person visits could also help educate older Americans on their options. Among the potential policy reforms discussed are eliminating or rebranding the Retirement Earnings Test and offering a lump-sum benefit for delayed claiming rather than some or all of the higher monthly benefits currently offered for later claiming.

“Deciding when to claim Social Security retirement benefits depends on a variety of personal considerations, such as age, health, marital status, other financial assets and savings, and whether or not one plans to continue working in retirement,” said Jason Fichtner, a former acting deputy commissioner of Social Security and BPC fellow who co-authored the report. “It’s important that people fully consider their options when deciding when to claim Social Security in order to optimize their claiming decision. It’s not just about maximizing how much you’ll get from Social Security, it’s about increasing your changes that you’ll be able to afford a long and dignified retirement.”

Read the issue brief