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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
REDWINE
May 18, 2012 at 12:57 am

WE SHOULD RETIRE AT THE AGE OF 52. RICH PEOPLE WANT YOU TO WORK UNTIL YOU ARE DEATH. THEY, ONTHE OTHER HAND ARE BORN RETIRED. MOST OF THEM NEVER WORK. F..K THE RICH, RETIRE AS EARLY AS POSSIBLE AND LIVE A LITLLE.

REVMAN
May 17, 2012 at 6:06 pm

What this writer makes it sound like we are stealing OUR money(yes if you live longer YOU win)but after I took my social security I also took money from my 401k.Now I pay taxes on my social security 50-85% of it is called Income and ALL of it is taxed from my state income tax then you turn 65 and they make you buy MEDICARE ($100))if you don't you have a penitly of 10% per year.My wife paid into the system all her life a died with getting one dime,I got $250 of her money to bury her.So take it as soon as your 62 and run with it unless you KNOW your going to live to 100.

Dan
May 17, 2012 at 2:59 pm

our corrupt government and their failure to repay soc.sec. is the reason soc.sec. is failing

Dan
May 17, 2012 at 2:57 pm

Why is there no talk about how much the government has stolen from social security. Social security would be healthy and solvent if the government illegally stole from soc.sec.and have never repaid.

Gary
May 16, 2012 at 5:03 pm

If you are worried about social security, don't go after the people that worked all their lives and paid in to the system. Go after the thousands in this country that paid in little or none and are drawing big monthly checks because they supposedly are disabled. while im sure there are many legitamnet recipients of disability benifits there are also many fraudulent bloodsuckers drawing it and they just sent the checks to them. They could save millions upon millions if they would crack down on it. I personally know of people that draw checks never hardly worked more than a couple years in their life total and claim they are not able to work. They also get free medical and prescriptions better than most working people. Many of them sell the prescription meds for cash while the rest of just kepp working and paying for these bums. Its a disgrace and an outrage. So if i could get mine at 62 I sure would because there may not be anything left by the time the communist in washington and the lazy ass bloodsuckers get finished bilking the system.

mike
May 16, 2012 at 11:26 am

Life insurance is recommended for household wage earners on whom other members are financially dependent. Social Security is not designed to supplement household income; it is merely a minimum safety net to hopefully prevent retired seniors from living in squalor. Sadly, most of us don't have sufficient financial plans to meet tragic events.

WALTER
May 14, 2012 at 9:08 pm

Please get off the back of the people who wont to draw at 62 their taking a big cut, this is not a hand out its money we've paid in thousands of people worked all their live never drawn a penny died before 62 much less 65 or 66.

LIz
May 14, 2012 at 7:58 pm

Social Security withholding from your paycheck is a tax. It is not set aside for you, as in a savings account or 401K. These taxes paid in fund the payments to current benefit recipients. It's no more an expectation that you should receive something specific from these tax withholding amounts than it is that you get something for yourself from the federal income tax you pay, also withhheld from each paycheck until you hit the maximum withholding for the year. These tax payments do not belong to you, and most people receive far more in benefits than they have ever paid in as taxes. Again, not your money, just your tax payments. You also pay Medicare taxes from all income, but you may never use Medicare. So in the case of a person who pays Social Security payroll taxes all their life (your employer pays the same amount of tax), but does not live to retirement age, there may still be value for their surviving spouse if, for example, your wife's earnings were higher than yours during your careers, and a widow's/widower's benefit at age 60 (not 62) is available to you. Or if at your retirement age, this benefit is greater than what you were eligible for, you get the higher amount. But there are also substantial possible payments to you and your family if you should become disabled, if a surviving spouse is caring for children 16 or younger the kids receive SS benefits. If only one spouse had income during the marriage, the earner gets their amount, and the spouse half of that (if it is less than what they would receive on their own record). If you die before the government builds a freeway near you, you don't get to have that either, even though the money came from your income taxes. Social Security remains a tax on income, with benefits for retirement and disability. It is of huge value to most taxpayers. But not as a savings account.

Kathy
May 14, 2012 at 12:08 pm

I agree with Jamey. If a spouse has put money in the system the family should receive that money. Expeceially if the person that dies hasn't collected anything. What does happen to that money? I think the social security administration needs to let us know what does happen to that money

Jamey
May 14, 2012 at 10:38 am

Waht about people who have worked all their lives and contributed to the system and then die. This happened to my wife; my kids are grown and I still work so no benifits from her contributions are paid to the family. I guess the goverment wins and the money that she put in now belongs to them. I personally feel this is wrong; it should be passed to family; I now live on only my income and could use a little help to keep our house etc. Buy the way you can claim $200.00 for death of your spouse but the papaer work involved isn't worth the hassel.