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How to Help Americans Claim Social Security at the Right Age

Executive Summary

Social Security is the foundation of retirement security in America. Among households headed by someone aged 65 or over, more than half rely on Social Security benefits for a majority of total income, while 19% depend on Social Security for at least 90% of income. Social Security provides not only income but also crucial protection against the risk of outliving one’s assets. This is particularly important today, as people are living longer than ever before and rising health care costs often lead to unexpected expenses that can drain savings.

One of the key financial decisions facing older Americans is when to claim Social Security retirement benefits. While these benefits are available as early as age 62, claiming later permanently raises monthly benefits, with the maximum benefits available to those who claim at age 70. Delaying claiming is thus equivalent to purchasing a greater inflation-adjusted annuity that will be paid for as long as the beneficiary lives. Most people, however, do not claim Social Security at their optimal age, usually because they claim too early.

This brief examines why older Americans typically do not claim Social Security optimally and how public policy can help them make better claiming decisions. While claiming is often driven by social, cultural, and behavioral factors, there are a number of ways policymakers could help older Americans make more informed choices that are likely to result in better outcomes. Policies that improve claiming decisions could, in turn, strengthen retirement security, reduce poverty among older Americans, and grow the economy.

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Potential Solutions

Improve Communications About How Social Security Works

Ways to make information about Social Security more useful, consistent, and clear.

Paper Social Security Statements
Reinstate the paper Social Security Statement for a wide audience so the Social Security Administration can communicate annually with Americans about their expected retirement benefits and Social Security’s rules. Officials could also visually redesign the Statement and improve the information it provides to better highlight key points and correct common misconceptions.

Online Tools
Improve online tools to better emphasize the importance of claiming age and longevity insurance, present information more clearly and consistently, and target information to the workers whom it would most help.

In-Person Office Visits
Improve in-person office visits to provide claimants with all relevant information and present it more clearly. Specifically, SSA could ensure that claims specialists cover all necessary points by having them follow prompts on a form or computer and improving their procedure manual. SSA could also adjust how it evaluates claims specialists to prioritize the quality of information provided to potential claimants.

Re-Framing Claiming Decisions
Revise the official names of claiming ages to better reflect the implications of claiming decisions. For instance, SSA could rename the “early eligibility age” as the “minimum benefit age.” Additionally, SSA should explore how various framings—showing benefits in monthly versus annual values, presenting benefit levels as gains versus losses, using older claiming ages as a benchmark, distinguishing “retirement” versus “claiming”—affect claiming decisions.

New Steps to Highlight Rules and Tradeoffs
Add new steps to the claiming process to help older Americans better understand Social Security’s rules and the tradeoffs of different claiming options. These steps could include having claimants sign a form acknowledging permanent benefit reductions from early claiming; giving claimants a blank bar chart on which they would enter the monthly benefits they would receive if they claimed at age 62, their FRA, and age 70; or introducing online pop-up messages with similar information.

Engaging with Other Financial Services
Engage with tax preparers, HR firms, and private financial advisors to encourage people to set up online “my Social Security” accounts. SSA could also work with them to provide helpful information about claiming as workers prepare to retire.

Policy Reforms

Ways to reform Social Security’s rules or other public policy to help individuals optimize their claiming decisions.

The Retirement Earnings Test
Eliminate the Retirement Earnings Test—or at least rebrand it or better educate the public about its rules—to clear up considerable confusion about the relationships between working and claiming retirement benefits.

Lump-Sum Benefits for Delayed Claiming
Provide a lump-sum benefit for delayed claiming rather than some or all of the higher monthly benefits in place today. This change could create a more effective incentive for people to claim benefits later.

Bridging Retirement and Claiming More Effectively
Introduce a mandatory add-on savings account to Social Security or provide a streamlined way for existing 401(k) retirement savings plans to facilitate later claiming. Similarly, encouraging private savings and creating new tools to accumulate assets, such as state-sponsored auto-IRA programs, could help people delay claiming Social Security benefits.

SSA Funding
Adequately fund the Social Security Administration. SSA’s budget has fallen in recent years, and Congress should ensure that SSA has sufficient funding to carry out all of its mandates and to improve its operations, communications, and claiming procedures without harming its other duties.

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