Most people don’t wait until 70 to claim Social Security retirement benefits. These changes may help people get bigger monthly checks, experts say

Personal Finance

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There’s renewed focus on the Social Security retirement age, thanks to recent Republican presidential debates.

The Social Security board of trustees projects the program’s combined funds will run out in 2034, when just 80% of benefits may be payable. To prevent that, lawmakers may generally raise taxes, cut benefits or a combination of both.

One possible change — raising the retirement agewas debated when the Republican presidential candidates took the stage in November.

“What we need to do is keep our promises,” Republican presidential candidate Nikki Haley said. “Those who have been promised, should keep it. But for my kids in their 20s, you go and say we are going to change the rules, change the retirement age for them.”

The retirement age has been raised before. In 1983, when Social Security faced similar solvency issues, legislation was passed that made a host of changes, including boosting the full retirement age from 65 to 67. That change is still getting phased in today.

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Full retirement age is when beneficiaries may receive 100% of the benefits they have earned. Those who claim earlier than full retirement age will have their monthly checks permanently reduced.

Those who wait — up until age 70 — stand to receive up to an 8% boost for every year they wait past full retirement age.

“The difference between an age 62 benefit and an age 70 benefit is about a 77% increase,” said Jason Fichtner, chief economist at the Bipartisan Policy Center. “That’s huge.”

If the retirement age is raised again, that may make it so early claimants face a steeper cut.

Despite the benefits of waiting until age 70, almost 90% of today’s retirees claim earlier.

“For the vast majority of people, waiting longer to collect Social Security is your best financial deal, your best investment option,” said Teresa Ghilarducci, professor of economics at The New School for Social Research.

Experts say there are changes that may encourage beneficiaries to wait.

1.  Draw from other funds while delaying Social Security

Financial experts already recommend using other income sources, if possible, while waiting to claim Social Security benefits.

New research argues more can be done to encourage workers to rely on funds from retirement accounts such as 401(k) plans or individual retirement accounts — dubbed a Social Security bridge option — before claiming retirement benefits, according to the Schwartz Center for Economic Policy Analysis at The New School.

If a worker relies on their own savings until age 70, they may be able to boost their Social Security benefits by $1,000 a month from age 62, for a total of $2,480 per month, according to the research. But even waiting slightly longer, until age 63, for example, may result in benefits that are $100 higher per month.

The Social Security bridge option would be ideal for workers who have retirement accounts or extra income they may set aside. However, other policies would be needed to help those without retirement savings, according to the Schwartz Center for Economic Policy Analysis.

Employer-sponsored retirement accounts could incorporate bridge payment plans that would distribute payments as long as the funds last or until a retiree turns 70, according to the Schwartz Center for Economic Policy Analysis. Alternatively, a separate account for bridging may be established by the Social Security Administration.

“Once they do the hard work of accumulating money in their retirement account, there really needs to be an easy, straightforward way for them to decumulate in the way that people want,” Ghilarducci said.

“People want lifelong guaranteed income,” she said.

2.  Make bridge annuities more accessible

When it comes to Social Security, even just waiting a year to three years longer — to age 63, 64, or 65 — can make a big difference, according to economist Fichtner.

To cover income needed while a beneficiary delays their monthly checks, a bridge annuity may help, said Fichtner, who also serves as a senior fellow at the Alliance for Lifetime Income, an educational organization focused on raising awareness of annuities in retirement.

Annuities are financial products that provide a guaranteed stream of income. However, they require consumers to part with a lump sum of money.

But the trade-off may be worthwhile, according to Fichtner, particularly if it lets a retiree access the guaranteed growth delaying Social Security benefits provides.

Consumers who want to pursue this strategy should consult with a financial advisor. Annuity options may also become available within 401(k) or 403(b) retirement plans. However, less than 10% of plans currently offer annuities, according to the Bipartisan Policy Center.

Annuitizing isn’t for everyone, Fichtner noted, especially those who don’t have access to employer-sponsored plans or who don’t have meaningful savings.

3.  Establish a Social Security bridge benefit

Some workers who have physically demanding jobs cannot wait until full retirement age to claim Social Security benefits.

The creation of a bridge benefit, which would start at age 62 and last until full retirement age, may help cushion the cut they may otherwise take to their monthly income, suggested a recent task force report from the National Academy of Social Insurance.

Workers would be able to apply for the bridge benefit based on a history of having physically demanding jobs. The requirements to obtain the benefit would be most stringent at age 62, while this would gradually ease up to full retirement age.

The bridge benefit would provide half the difference between what a worker would receive at full retirement age and their reduced age 62 benefit. For example, if someone is eligible for $1,000 per month in Social Security benefits at full retirement age, and a $700 reduced benefit at age 62, the bridge benefit may raise their income to $850 at 62.

The change would cut the early claiming penalty in half, members of the task force noted during a November presentation of the report. Other countries have implemented similar benefits.

4. Provide more generous minimum benefits

Social Security provides a special minimum benefit to replace more income for workers who have had low earnings for many years.

Yet over time, the value of those special minimum benefits has diminished. While regular Social Security benefits are linked to wages, the special minimum benefit is tied to prices. As wages have grown faster than prices, today’s minimum benefit has become “gradually irrelevant,” according to the Schwartz Center for Economic Policy Analysis.

The special minimum benefit may be improved by raising the benefit levels, re-indexing them or changing eligibility rules, the research suggests.

Creating a strong minimum benefit should coincide with any increases to the retirement age, Fichtner said, to prevent claimants who have no choice but to take retirement benefits at 62 from facing deeper benefit cuts.

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