“The waiting is the hardest part,” Tom Petty famously sang. That sentiment rings all too true with Americans when it comes to claiming Social Security benefits.
A bipartisan group of senators is proposing two key changes they say would encourage more people to wait until age 70 to claim Social Security benefits.
Sens. Bill Cassidy (R-LA), Chris Coons (D-DE), Susan Collins (R-ME), and Tim Kaine (D-VA) introduced proposed legislation and sent a letter to the Social Security Administration on Monday saying Americans are confused about their claiming options and that the SSA needs to do a better job at communication.
To address these problems, the senators are seeking to change the language the SSA uses around the claiming process and increasing the mailing of paper Social Security statements.
These updates, they say, would encourage more Americans to avoid the common mistake of claiming Social Security benefits too early—potentially costing them well into six figures in benefits had they waited until age 70 to claim.
Changing words changes outcomes
The four senators want to change the way the SSA explains claiming strategies. Currently, prospective beneficiaries are presented with what the group calls confusing terms including “early eligibility age,” “full retirement age” and “delayed retirement credits.”
Instead, the senators say Americans should be given a choice among “minimum benefit age,” “standard benefit age,” and “maximum benefit age.”
Age 62 is currently called “early eligibility age.” Under the proposed legislation, that would be changed to “minimum benefit age.” Ages 66 to 67, currently referred to as “full retirement age,” would be changed to “standard benefit age.” And “delayed retirement credits” would disappear in favor of “maximum benefit age” for those at age 70.
If the legislation were to pass, the changes would be included in all of the SSA’s educational and informational materials.
More than 90% would benefit financially from waiting until age 70 to claim, but only about 10% of workers actually wait until 70 to claim.
– NBER research
“When to claim Social Security benefits is a critical decision for older Americans planning their retirement,” the senators said in their letter to the Social Security Administration. “Most people, however, do not claim benefits at the age that would maximize their income in retirement, usually because they claim too early.”
To wit, retirement benefits taken at age 70 are 76% higher, adjusted for inflation, than retirement benefits taken at 62, according to 2022 research from the National Bureau of Economic Research.
That same research found all U.S. workers ages 45 to 62 would benefit from waiting until beyond age 65 to start receiving Social Security retirement benefits, and more than 90% would benefit financially from waiting until age 70 to claim. But only about 10% of workers actually wait until age 70 to claim.
The compelling research found people leave a median household loss of $182,370 on the table by not waiting until age 70 to claim.
“As American workers prepare for retirement, it’s crucial that they have as much information as possible to ensure they can maximize the Social Security benefits that they’ve earned. Through simple language changes, we can make it easier for countless Americans to claim Social Security at the best time and get the most out of their retirement income,” said Senator Coons. “Bipartisan legislation that improves Social Security is possible, and I encourage the Senate to take up and swiftly pass this commonsense bill.”
Encouraging people to wait until 70 to claim is something the retirement industry has been pushing because of the proven financial benefits of doing so. 401(k) Specialist recently wrote about how George Fraser and Shlomo Benartzi have been advocating for this strategy, sometimes instructing people to draw down their 401(k) if needed to allow them to wait to start claiming Social Security.
“You don’t have to claim when you retire. Most people don’t know it,” Benartzi said in the article, adding that among people following his strategies, 60% delay claiming.
Return to mailed statements
The legislation also aims to help Americans better plan for retirement by requiring the SSA to mail Social Security statements—which detail how much a person has paid into Social Security and Medicare—every five years to individuals with Social Security accounts between the ages of 25 and 54, every two years for those between the ages of 55 and 59, and annually for those 60 and above.
“Americans have earned their Social Security and should have the best financial information available when they retire,” said Senator Cassidy. “Our bill ensures Americans planning for retirement get the most out of their benefit.”
The paper statements would be sent regardless of whether someone has established an online “my Social Security” account, though there would be the option to opt out of the paper statements.
In addition to the legislative proposal, the letter to the Social Security Administration also seeks more information on the factors that lead beneficiaries to claim early, the steps the administration may take to encourage more informed claiming decisions and what effects new benefit statements have had on claiming behavior. The senators requested a response to the questions by no later than June 2, 2023.
Read the text of the bill here.
Read the text of the letter to SSA here.
SEE ALSO:
• Bernie Sanders Reintroduces Bill to Increase Social Security Benefits, Extend Solvency
• Here’s How Much Waiting Until 70 Boosts Social Security Income
• George Fraser and Shlomo Benartzi: The Power of Pennies