Filing early for Social Security? Therapy may be in order

Deciding when to claim Social Security benefits is one of the most important retirement moves you will make. Social Security is by far the largest retirement asset for all but the wealthiest Americans, and the only source of guaranteed lifetime income – with incredibly valuable annual inflation adjustments.

And most of us are flubbing it.

In 2012, 38 percent of men, and 43 percent of women, filed for benefits at age 62, according to the Social Security Administration. An additional 41 percent of men, and 37 percent of women, filed by their full retirement age. Just 3 percent took benefits at age 67 or later. (The remainder were Social Security disability recipients, who are converted automatically to retirement benefits at their full retirement age.)

The majority of early filers could have received thousands of dollars more in annual benefits after filing, because benefits are adjusted up or down from full retirement age by about 8 percent, up until age 70.

Waiting isn’t right for everyone. If you’re in ill health and don’t expect to have a long retirement, or you’re in dire straits because of a job loss, filing early can be a sensible step. But the numbers show that most people will do much better by waiting at least until their full retirement age.

That’s especially true for married couples. The odds of one spouse enjoying better-than-average longevity are high, and Social Security benefits can be critical for surviving spouses at an advanced age, when other resources often are exhausted.

But even shorter term, the boost to retirement security can be huge.

Why do so many of us get this wrong? Researchers at the business schools of the University of California at Los Angeles and Duke University decided to explore the psychology of Social Security claiming decisions. They conducted a series of surveys of Americans ages 35 to 65, examining their attitudes about risk, values and how they make judgments. They concluded that suboptimal Social Security claiming is most often tied to incorrect expectations about longevity and misunderstandings about risks and fairness issues in the Social Security system.

Learn more about the psychology of claiming decisions in my column today at Reuters Money. Also check out the RR guides to getting the most out of Social Security benefits, FAQs on spousal filing issues and my checklist for Social Security and Medicare filing.