Workers in Louisville face a major — and very real — retirement crisis. Wealth inequality and workplace changes have practically sawed off two of the legs of the traditional retirement stool: pensions and private savings.
More than half of today’s retirees rely on the third leg of the stool, Social Security, for most of their income. (The average Social Security benefit in Kentucky is roughly $16,000 per year, only about $3,500 above the federal poverty line for individuals.) Even with Social Security, some 13% of Kentucky seniors live in poverty. The good news is that workers can increase the size of their future Social Security checks by delaying retirement.
Delayed claiming past the early retirement age of 62 results in bigger monthly benefit checks for life. Waiting until after the current full retirement age of 66 yields even greater gains — up to 44% more than early claiming. But too few Kentuckians are taking advantage of this delay-and-gain strategy. The average retirement age in Kentucky is 62. It’s safe to assume that most of those retirees are claiming Social Security early — even though their permanent monthly benefits will be as much as 25% lower than if they had waited until full retirement age. Social Security penalizes claimants roughly 6% for every year before 66 that they file.
Unfortunately, nearly half of workers nationwide are unaware of the financial advantages of waiting to claim. That is why our organization has launched “Delay and Gain,” a public education project to help Louisville’s older workers understand what’s at stake.
Traveling around the country, I have often heard from retirees who don’t have enough money to keep up with expenses. Meanwhile, many of those still working tell me they plan to retire early simply because they are “sick and tired of working.” I respond that they will be even more sick and tired of not having enough money in old age. People are living longer, meaning seniors must survive on their fixed incomes even longer. Louisville’s future retirees will likely need the extra cash that delayed claiming can provide.
Let’s say that a worker’s monthly Social Security benefit at the full retirement age (FRA) of 66 is $2,000. If she claims early at age 62, her monthly benefit will be reduced to $1,500 — and will remain at that level (adjusted for inflation) for life. However, if the worker waits to claim until age 63, her permanent benefit jumps to $1,600 per month. If she delays claiming until 64, the benefit is $1,766. If she defers until 65, it climbs to $1,900. Not only will her benefits be higher by waiting, so will the dollar value of her annual cost-of-living increases. Workers can use the Social Security Administration’s online calculator to determine benefit amounts at different ages.
Women confront special financial challenges in retirement, due to persistent wage discrimination and time spent away from the workforce raising children or caring for elderly family members. Because Social Security retirement benefits are based on lifetime earnings history, women’s benefits are typically lower than men’s. Women can mitigate these inequities by waiting to claim Social Security until at least full retirement age — increasing their monthly benefits.
Some workers claim early because they wrongly believe Social Security won’t be there for them in the future, so they’d better get their benefits now. While it’s true that the system’s trust fund will be depleted in 2035 if Congress takes no preventative action, there is common sense legislation in Congress (cosponsored by Rep. John Yarmuth) to avert that scenario — and keep Social Security financially sound for the rest of the century.
Other older workers try to calculate their “break-even” point on lifetime benefits, thinking that they’ll receive a higher total payout over the years by claiming early. This is not usually a winning strategy because they are choosing a smaller monthly payment — sometimes hundreds of dollars less — trying to game a program that isn’t designed around odds. Social Security is not an investment vehicle; it’s an income insurance program in a country where life expectancies are rising and so are costs.
Of course, not everyone can wait to claim benefits until full retirement age. Poor health, physical limitations, workplace changes, caregiving demands and unemployment are a few of the factors that can make it difficult to wait to file for Social Security. But for Louisvillians who are able to continue working until at least their full retirement age, it pays to Delay and Gain.
Max Richtman is president and CEO of the nonprofit National Committee to Preserve Social Security and Medicare. He is former staff director of the U.S. Senate Special Committee on Aging.