Are those who claim Social Security benefits early making a mistake? New research finds that… it depends.
The paper by researchers at the Center for Retirement Research at Boston College, notes that, according to data from the Health and Retirement Study (HRS), there has been a decline in those claiming Social Security benefits at 62 – but it also finds that those who do so fare worse than “postponers” in some ways but are better off in others.
The researchers found that the mixed picture is because those in the early claiming group are themselves a mixed group, including, on the one hand, those with little education and poor job prospects – who tend to wind up worse off – and those with at least some college and sufficient resources to claim early, who tend to come off better for having made the early withdrawal. Despite demographic shifts and changes in retirement plan options, the report notes, the percentage of the age-62 claimers in each of these groups has remained virtually constant over the three cohorts.
Even though the trend has been toward fewer claiming early benefits, the paper notes that it doesn’t appear to be due to any improvement in retirement readiness – quite the opposite, as it claims that the percentage unprepared at 62 has increased over time, noting that health and employment shocks and the absence of a DB pension seem to be related to the lack of preparedness for both the disadvantaged and the advantaged.
The percentage of households claiming at 62 that are not financially prepared rose from 60.1% for those born in 1931-1936 to 66.4% for those born in 1942-1947. Including the proceeds of a reverse mortgage reduces the percentage that are unprepared, but the pattern remains the same.
The researchers claim that comparing the calculated household replacement rates with target rates from previous research shows that, overall, roughly 65% of households claiming at 62 are not prepared.
That said, roughly 80% of the disadvantaged are unprepared compared to 40% of the advantaged.
