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When to Claim Social Security

Many individuals nearing retirement, according to a new report, remain uninformed about how Social Security works and when to claim benefits – failings that could jeopardize their own financial security and that of their dependents.

The report, from AARP, is the second in two years in which the Washington-based group has measured Americans’ familiarity with the Social Security program. The study – “The Impact of Claiming Age on Monthly Social Security Retirement Benefits: How Knowledgeable Are Future Beneficiaries?” – should be required reading for everyone age 50 and older who has yet to interact with the program.

Indeed, the report notes that a clear understanding of so-called claiming strategies is more important than ever, given increasing life expectancies, the demise of traditional pension plans, and the toll that the recession has taken on other sources of retirement income.

Actually, the new report starts with some positive news. Many Americans appear to understand the rudiments of Social Security. For instance, most people surveyed (89%) are aware that – if they wait until their full retirement age to claim benefits – their payouts will be larger than if they first file for a check at age 62. Many people also have a passing familiarity with benefits for widows and widowers.

Beyond those basics, however, knowledge falls off sharply. To be more specific:

— Spousal benefits are a critical part of Social Security. A spouse, for instance, could be eligible for benefits even if she/he has never worked for pay. That said, only about half (48%) of surveyed individuals who were married or had even been married were aware that such benefits were available.

— Most respondents were aware that Social Security’s “earnings test” can result in reduced benefits if a person is collecting Social Security benefits and has earned income at the same time. But almost three-quarters (71%) of those surveyed incorrectly believed that their benefits would be reduced permanently. (In fact, benefits are increased after full retirement age to offset the earlier reductions.)

— Despite the general familiarity among surveyed individuals with benefits for widows and widowers, only about half of respondents (52%) who were married or had even been married correctly identified that the age at which a widow or widower claims Social Security can affect the size of her/his benefit.

These deficiencies and others, AARP concludes, reaffirm “the continued need for education and tools to help individuals make informed decisions about when to claim Social Security benefits.”


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.