Social Security urged to focus on delayed filing, longevity risk

The Social Security Administration needs to up its game when it comes to helping retirees decide when to claim their benefits.

The timing of a Social Security claim is the most important financial decision most workers will make about their retirement.

Benefits can be claimed as early as age 62, but waiting just a few years can boost annual benefits by a whopping 25 percent – or more. Yet data from the Social Security Administration (SSA) shows that nearly half of workers claim benefits right away.

Journalists, financial advisers and companies that help retirees optimize benefits have been preaching the benefits of delayed filing for years. (Just two of the recent articles I’ve done on the topic include an analysis of strategies still available after the phase-out of file-and-suspend options and how delayed filing can help even very affluent households.) Now, lawmakers in the U.S. Senate are pushing the SSA to improve the guidance it provides on claiming decisions. They are armed with a report published this month by the U.S. Government Accountability Office (GAO) that found problems and inconsistencies in the advice that SSA claims specialists give to people applying for benefits, and on the agency’s website.

The overriding message of the report is that the SSA needs to be more proactive about informing claimants that Social Security benefits can be a hedge against longevity risk. That is, the benefits provide a guaranteed income stream that helps protect people against the risk of outliving their money. That framing should often lead to a decision to delay filing.

The GAO report was prepared at the request of the U.S. Senate Special Committee on Aging. At a hearing last week, Senator Claire McCaskill, a Missouri Democrat and the committee’s ranking member, took special aim at language on the Retirement Estimator calculator on the SSA website, which claimants can use to estimate the benefits they would receive.

A downloadable guide accompanying the calculator makes this statement: “If you live to the average life expectancy for someone your age, you’ll receive about the same amount in lifetime benefits. It doesn’t matter if you start receiving benefits at age 62, full retirement age, age 70, or any age in between.” That is technically correct, but a statement only an actuary could love – many claimants will do better by delaying their filing.

And the guide does go on to explain the issue of longevity risk. (Download the guide here.)

Learn more in my Reuters Money column; view the hearing, and download testimony here.

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