The Real Reason Why People File for Social Security Early

A woman files for her Social Security retirement benefits online as Michael Astrue (R) commissioner of the Social Security Administration stands nearby during a news conference
A woman filing for her Social Security retirement benefits online | Mark Wilson/Getty Images

With a new Congress and administration headed to the White House, it can be hard to tell what the future holds. But we can probably count on one thing: A shake-up is coming. With Donald Trump holding the presidency and Republican majorities in both the House and Senate, attempts to reform some of our oldest and most important programs and institutions are in the pipeline. That may sound good to some Americans. But what does it mean for health care or social security?
Again — we still don’t know. But the signs are pointing toward some big changes. Privatization of the Social Security system, for example, may actually happen, now that Republicans control most of the government.
If you’re around the retirement age, that may spook you into wanting to act. You may want to sign up early, for example. And you wouldn’t be alone. Lots of people have been signing up early for social security for some time now, despite the advantages (in the form of boosted income) of waiting. But the system is fraught with problems. Not the least of which is that it will become insolvent within the next couple of decades.
Right now, you can sign up for social security after you turn 62. If you wait until 70, though, you’ll receive more money. So, why are people opting for smaller checks at earlier ages?

Social security: Getting in early

People attend a rally celebrate social security
People attend a rally celebrate social security | Alex Wong/Getty Images

When you think about it, it’s easy to understand why people would want to start seeing a payout on all the money they’ve been contributing over the decades. It’s your money, and if you want to retire before the full retirement age of 66, why not? The incentive, of course, is to get people to wait longer by giving them more money after the age of 66. Still, people are signing up earlier and taking reduced checks.
What’s motivating people to do that? The simplest answer is loss aversion.
A 2015 study published by the National Bureau of Economic Research Retirement Center looked at the relationship between Social Security claims and loss aversion. By studying survey responses from more than 7,000 people, the researchers found that loss aversion was an overwhelming factor in decisions to sign up for Social Security before the full retirement age of 66.
“We consistently find that higher levels of loss aversion predict individuals’ preference for claiming Social Security benefits early,” the study said.
Loss aversion means that people are more likely to choose an option that tends to keep them from losing something. The flip side of that would be acquiring more — so, essentially, early filers are looking to avoid losing money rather than acquiring more. People are signing up before 66 because they don’t want to miss out on the income they could be receiving right away.

Should you think about filing early?

Blank Social Security checks are run through a printer at the U.S. Treasury printing facility in Philadelphia
Blank Social Security checks are run through a printer at the U.S. Treasury printing facility in Philadelphia | William Thomas Cain/Getty Images

Basically, it’s some underlying psychological workings that are leading to people filing early. Nobody knows when they’re going to shuffle off the mortal coil, and in the case of people deciding to file early, they feel that they should get the most that they can while they’re still here. It’s a basic trade-off. I’ll take less money now, that’s guaranteed, rather than more, later.
When you consider that you don’t know whether there will be a later, why not?
The issue with this type of thinking, though, is that you can put yourself in a bad position when later ultimately does roll around. People are living longer, and by opting to take a smaller social security payment, you can put yourself in a situation in which your income isn’t adequate. Especially if you don’t have any other investments or retirement savings to draw from.
So, should you sign up early? There’s no easy answer, as it’s going to depend completely upon your own circumstances. But generally speaking? If you can wait it out for a bigger check, then you probably should. Loss aversion may tug at you, or the perception that you’re somehow losing money, but if you can wait and keep socking away money into savings and investments, that’s probably the best route to take.

Don’t forget about Social Security tools

Despite what politicians may say on the campaign trail, no one cares about your financial future as much as you. In order to receive as much as you can, you should keep track of important Social Security information. Consider this: Nine out of 10 individuals age 65 and older receive Social Security benefits, representing about 38% of the income received by the elderly.
The Social Security Administration now offers online accounts so that Americans can stay up to date on their financial situations. An online account allows you to keep track of your earnings and verify them every year, estimate future benefits if you are still working, or change personal information, such as your address and phone number. You can even alter direct deposit instructions if you’re already receiving payments.
To ensure accuracy, you should also consider saving every tax return, along with W-2 and 1099 statements. If the amount of your Social Security taxes paid ever comes into question, this move may be a financial life saver.
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