During the 12-month period ending in September, there was a substantial increase in the number of people between the ages of 65 and 69 who retired, with around 5% more people leaving the workforce than during prior years.
While more seniors retired than in the past, fewer actually claimed Social Security. In fact, there was a 5% drop in the number of applications to start retirement benefits. This was the biggest decline in new benefits applicants in almost two decades.
The Washington Post, which analyzed this data, indicates there's likely a simple reason for these strange numbers: More retirees are leaving the workforce but are delaying their claims for Social Security and relying on other income sources instead. That's likely good news for these retirees, many of whom made a smart choice that should help them end up with more monthly and lifetime income.
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Why is the decision to delay Social Security a smart one?
So, why is it a good thing that more people are retiring without claiming Social Security? There are two simple reasons:
- Delaying Social Security results in larger monthly income
- It also maximizes the chances of earning more lifetime benefits
See, retirees can get their standard benefit by starting Social Security checks at their designated full retirement age. But since FRA is between 66 and 2 months and 67 depending on birth year, those who start their checks before then end up shrinking their monthly benefit since they're subject to early filing penalties. Seniors could claim benefits as soon as 62, and many do when leaving the workforce, but this can leave them with much less monthly income -- a full 30% less if their FRA is 67.
Retirees who claim at their FRA still miss out on maximizing their benefit, as starting checks then would mean forgoing the chance to earn delayed retirement credits. These credits can be earned until the age of 70 and they increase the amount of monthly checks up until then. They result in an 8% annual benefits increase, so retirees who wait longer than their FRA end up with more money each month.
The retirees currently waiting to claim their benefits are thus increasing their monthly Social Security income, which could prove to be a smart choice if they start to run short of savings later in life and end up needing to rely on their benefits for a larger portion of their total income.
Retirees who are delaying may also end up with more lifetime income from Social Security Administration. The benefits program was designed so the claiming age shouldn't matter as smaller checks obtained sooner should theoretically equalize out with larger checks obtained after a delay. But, since lifespans have gotten longer, a small majority of retirees end up better off if they delay until 70 because they live long enough that the higher monthly benefits resulting from waiting continue for longer than it takes to break even for forgoing benefits.
Now, delaying may not work for everyone, as there are sometimes reasons an early claim becomes necessary. But, it's still good news that more seniors are recognizing that waiting to claim benefits could be a smart financial move that pays off in the end.
