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Case for Social Security at 62

By Jennie L. Phipps · Bankrate.com
Tuesday, March 20, 2012
Posted: 12 pm ET

Is it a mistake to allow people to claim Social Security at 62 -- even at a reduced rate -- when we are living longer than we did when the program first started?

The Center for Retirement Research at Boston College examined this question and came to the surprising conclusion that the actuarial assumptions made in 1960, reducing the amount of people who claimed at 62, are still a fairly accurate reflection of the cost -- even though we're living 20 years longer.

I think this retirement planning math is interesting and argues strongly for the long-term stability of the Social Security program.

What you should know about social security benefitsWhen Congress first allowed early claiming for both men and women in 1961, it set the benefit reduction for early retirement at five-ninths of 1 percent for each month a participant claimed before the program’s full retirement age of 65. Benefits claimed at age 62 were reduced 20 percent (five-ninths of 1 percent per month times 36 months). Participants who would have gotten $1,000 a month at 65 got roughly $800 a month at 62.

Over the last 50 years, this calculation has been basically unchanged even though average life expectancy at 65 is now 20 years -- five years longer -- than it was in 1960.

The center says that at first blush -- because life expectancy is longer -- today's participant who claims at age 62 instead of age 65 receives benefits only 15 percent longer (three years divided by 20 years). The center says that all things being equal, to keep costs constant, the monthly benefit could be reduced by 15 percent rather than 20 percent.

But there are other factors. The biggest of them, the center explains, is interest rates. Interest rates affect the amount the government has to set aside to pay for future obligations. A higher interest rate shrinks the cost of paying benefits claimed at age 65 more than it shrinks the cost of benefits claimed at age 62.

Because interest rates rose between 1960 and 2004, the original 20 percent reduction remained actuarially correct for many years, but since 2004, interest rates have dropped sharply. That reduction has made the cost of benefits claimed at 62 about 96 percent of the cost of benefits claimed at 65. By 2050, rising longevity could further reduce the cost of benefits claimed at 62, with the rise of full retirement age to 67 further complicating the calculation.

The bottom line is a difference that is very tiny and changing constantly. Since changing benefit calculations every time interest rates or longevity predictions change isn't practical, sticking with the tried and true seems like the best approach. The center concludes that given the other serious problems facing Social Security, this issue "isn't worth a prominent place on the national agenda."

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112 Comments
Randy
May 14, 2012 at 8:47 am

It's amazing that a lot of people with fat pensions argue that social security is NOT a retirement plan, it is insurance and we should not count on it. Semantics, Semantics. There is and has been a pretty hefty retirement benefit, especially if you've contributed the max to social security for a number of years. The benefit is currently close to #3,000 a month if you defer to age 70. You get statements in the mail, just like a retirement plan. It it quacks like a duck....

Amy Brown
May 12, 2012 at 6:57 pm

I simply do not understand the mentality of the people today. First we should recognize that the money workers put into social security
is the money the workers earned - it is their money and it was matched by the employer. Now we find the federal government, as dishonest as can be, has spent most of the soc security - money that is not the federal government's to use. They do not apologize
nor do they seem remorseful - they simply state every so often in the NWO media that the soc sec fund is going broke. WTH? This money belongs to the citizens who earned it. If the government had not wasted our money on x-rays with TSA, and radiation detectors for police, Homeland Security police in addition to regular law enforcement, FEMA camps, FEMA food, FEMA body bags, FEMA coffin liners, FEMA concrete vaults already in place by the way, and the 600 plus biolabs found throughout the country, not to mention the many other wasteful programs that simply end up in some dishonest politicans' pocket - such as the gross stimulus money and the most insulting - the BAILOUT in 2008 that effectively gave control of the finances, the politics, the future of our country to Goldman Sachs while putting all other Wall Street Bankers out of business. No one complained or even spoke up. Now Obama has really done a good one - the health care
bill eliminates care for anyone over 70 and it is controlled. If someone wants to pay for their own health care - it probably wont be possible with the new laws. Lets see what happens to Nancy Pelosi when her face lift falls - will these politicians begin to
see how they have destroyed our country? With TSA, NSA and the billion dollar compound in Utah in a town known for its polygamy - which of course is illegal but the whole way the government has
responded to the public is illegal based on what our forefathers worked so hard for. My advise is to get your social security while you can for the chances of getting it later are very slim.
Vote out everyone who is in office and send letters to them and to the local media telling them what you are doing and why. If
enough lazy Americans can get off their duffs to do this, then we have a powerful voice. So far, the Nwo has been the voice and most people are simply too dumbed down to know or care.
If we dont unite, we are facing a future in a concrete vault brought about by the biolabs all over the country not to mention the radiation leaks that are certain to cause a great amount of deaths and most likely much more autism.

Roger Noyes
May 12, 2012 at 6:07 pm

I am amazed that no one has seen the inflation elephant in the room. Taking Social Security at 62 as Alan did provided him with a $80,000 cushion. He estimates that it would take him until 84 to break even with those who took their benefits later at "normal" retirement age. Well what about inflation in those 22 years? At today's inflation rates for real items, ex housing, the person deferring their Social Security benefits may never catch up in real purchasing power because the difference between the Social Security COLA and real inflation would cut those benefits by close to one third in 22 years.

louis
May 12, 2012 at 2:10 pm

Alan, what year were you born, and hence what was full-retirement age for you, that is at what age could you have drawn an unreduced benefit? If you would have received an unreduced benefit at 65, but got one reduced by 20% at 62, then you would have broken "even" 15 years after you started, that is at age 77, and fallen behind by starting early after that point. If you would have had to wait until 66 for an unreduced benefit, then you would have seen a 25% reduction if you started at 62, and been "even" 16 years after you started, that is at age 78, and again fallen behind from the point on. Your numbers, 20K/year at 62 versus $23,6000 don't look quite right. (Might it have been a bit less than $20K, then the $3,600 bump, or might you have started somewhat after you hit 62?)

There is a further wrinkle, that would push that break even point after an early start further off, that is the money you could earn on the amount you accelerated. That would depend on the rate of return you would get over the 3 or 4 (or more) years you did not "delay" the start of your benefits, but wouldn't change things very much.

And then if you were to die before that break even date in the future, your start earlier strategy would prove to have the right one, though matters are greatly complicated if you are married and the spouse entitled to draw the greater benefit. (Age differences between spouses and the impact of gender on life expectancy are additional, confounding variables.)

Linda, you are right about the opportunity to "withdraw" (SS's term) your application for benefits, pay back what you have drawn up until then, and start anew taking a higher monthly benefit. Ain't no more, that option went away in 2011. I know because I availed myself of it months before they ended it.

alan
May 12, 2012 at 12:06 pm

I took my SS at age 62, this gave me 4 more years of additional income at 20k yr,(80,000 total) if I waited till 66, I would have gotten 20% more (300 mo.) 3600yr more. I t would take me 22years to get that 80,000 back !
I would have to live to be 84 to break even !

Linda
May 11, 2012 at 8:27 pm

Mary,
Rich was right last year. This year, all that has changed and you can no longer pay back all the ss and retire at older age and higher benefits.

Mary
May 11, 2012 at 11:50 am

@Rich - I took an early retirement at 62, but nowhere have I read that one can pay back the SS and take full benefits at full retirement age. Please tell me where that information is . . . I would seriously think about doing that is it is true. Or . . I'll just call the Social Security Office and ask the question. I am willing to bet my SS benefits, they don't know about it!

Steve
May 10, 2012 at 10:19 pm

It's truly sad to hear so many people over-simplify today's social issues. If they really were that simple, why do you believe that they wouldn't have already been solved?

I loved my work. I did the same thing for 40 years and was widely acknowledged to be good at it. For the record, I was in healthcare and still very capable. Without being conceited, I can honestly say that I performed better at age 59 than 29. There is value to experience, especially for those of us who are happy in our work.

With so many young people in the job market, employers don't want those of us who are over 59. We can't even get interviews. The screening takes place online, which most employers now require.

You don't have to take my word for it. I first learned about it from the US Dept of Labor. Yes, it's against the law, but virtually impossible to prove. And for sure, many of those younger jobseekers are raising families. It's not as if I am jealous of them or want to deny them the opportunity to succeed.

To generalize that those over 60 as being selfish and money-hungry is quite insulting. The mere fact that Walmart fired its greeters, most of whom were seniors, should by itself reflect the sad state of our economy. Why did Walmart do it? The same reason they do everything else - to make more money and to prove how powerful and indifferent they really are! Did it change the value of their stock by even one cent? Probably not!

Rich
May 10, 2012 at 8:32 pm

James
I used to say the think the same thing twenty-five years ago. Don't worry, SS will still be around in 2050. I over-saved during my work years. I lived frugally, invested conservatively and took every tax deferred advantage I could find (IRA, Keough, 401K, variable life insurance). I trusted no one but myself to take care of my retirement funding. I was let go at my job at age 59.5. I took my SS at 62. The article didn't mention it, but you still have the option of repaying SS at a future date and taking the higher monthly payment. This is an effective hedge against dying before you get what's coming to you.

J.J.
May 09, 2012 at 11:14 pm

I think anybody that is 62 years old can retired,because it's their money they worked very hard for.Some people have to retired early,because of they health is not good.