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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
James
May 09, 2012 at 8:55 pm

You are all very welcome for my paying your social security. I don't expect to get any myself...I would be collecting after 2050...but I hope you at least thank young people once for every check you collect :)

Mitt_win4us
May 09, 2012 at 6:16 pm

I retired young & early.Sick of working.
I only had 1 dream and that was being Debt free and retire early.

Looks like i picked a great time too retire 3 years ago.
Been enjoying myself ever since.It's time too enjoy the american dream when you know a POTUS wll be elected that doesn't know what he's doing with no experience.Now! all i do is travel,attend church and help the needy.I thank God daily for my health & strength and being able too enjoy the rest of my day's doing what i'm called to do.
May God Bless the USA

Gars
May 09, 2012 at 2:58 pm

Social Security also has a disability insurance component for people that can not work and for minor children of people that have died.

There is no pot of gold. It's all being spent each year. Any surplus is "invested" in Treasurys and spent by the Federal Government.

If you die before you collect anything, that's insurance. Some winn big and some lose big.

Jack Kinch(1uncle)
May 09, 2012 at 2:53 pm

I retired at age 59 on my savings. I started collecting SS at age 65 to get full benefits. I will be 85 next month. I am glad I waited.

Erica
May 09, 2012 at 9:37 am

I took my SS at 62 and have not once regretted it. I have a very small income but I find that staying home does not cost nearly as much and I am enjoying doing as I please while I still have good health and mobility. DO NOT wait till you are ready to croak to retire.

robert romero
May 09, 2012 at 3:45 am

I retired at 62 and i love it but only because i had union benefits

Kate Smith
May 09, 2012 at 2:31 am

My mother died May 2 in 1992. Her first SS check came after her death. I worked for a large company for 18 years and a half ago was laid off through a "restructure" after making abut $60,000 a year. Between SS and unemployment I make almost half of that now and I had to take it because of the unknown and my monthly living expenses. I do not think it is fair to reduce the benefits you have paid in because situations in life have given you no choice, particularly in this uncertain economy. Its money we have paid in for years. What happens to the money that people have paid in when they die early?

Abe
May 09, 2012 at 2:13 am

Take what u can as soon as u can.

Lorry Johnson
May 09, 2012 at 1:08 am

My husband waited until 65 to get his full benefit. He was gainfully employed all his life, worked very hard, and collected two SSN payments before he died.

Carolyn Miller
May 09, 2012 at 12:47 am

I plan on getting mine at 62 in 1 1/2 years, I have seen too many people die before reaching 65 let alone 67. People that work hard for a lot of years wear out thier bodies some long before they reach even 62