Opinion Editorial | |
| Monday, November 1, 1999 | |
Social Security Credit For Delayed Retirement To Increase
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One of the least well-known aspects of the Social Security system is the delayed retirement credit. This credit raises benefits for retirees when they put off drawing Social Security benefits, even though they are eligible for them. For workers turning 65 this year, they will receive a 5.5 percent increase in their Social Security benefits for each year they delay drawing benefits. Thus, if their work history entitled them to $1,000 per month in benefits at age 65, but they did not begin drawing benefits until age 66, they would get $1,055 per month.
The idea of the credit is to encourage workers to stay in the labor force and not retire the minute they become eligible for benefits. But many workers are under the mistaken belief that any benefits they fail to draw simply are lost. Hence, many workers are retiring too soon for their own good. A new study from the National Bureau of Economic Research says that most workers would be better off by delaying their first Social Security benefit check by up to 3 years.
In future years, the gain will increase. That is because the delayed retirement credit will rise to 8 percent in the year 2008 (for workers born in 1943). This means that someone waiting until age 70 before drawing benefits would get 40 percent more than if they started at age 65. (After age 70 there is no further increase in benefits.) At that point, the Social Security actuaries estimate that the lifetime benefits people receive from Social Security will be the same in the aggregate regardless of whether they retire at age 65 or age 70.
The delayed retirement credit is important because the nation is facing a critical shortage of skilled workers and cannot afford to have so many of them in retirement, out of the labor force.
Indeed, a majority of workers now choose early retirement at age 62, even though their benefits are sharply lower than if they waited until age 65. In 1960, just 10 percent of workers chose early retirement; in 1995, 58.3 percent did.
A growing number of researchers now believe that more older Americans ought to remain active in the labor force, for their own health as well as the economy's, as a new study from the Committee for Economic Development documents. That is why more workers should be aware of the delayed retirement credit.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 27, 1999.
For NBER text
http://papers.nber.org/papers/W7318
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