The emotional aspect of financial decisions cannot be understated. In my experience, you can show historical data, figures, projections, and build a solid case for a certain strategy. However, emotions will typically win out over data every time. That’s part of being a human being and makes all of us unique.
I am continually fascinated with the behavioral aspects of personal finance. Logic and reason can easily lose out to fear and greed. Fear can cause people to completely avoid risk, costing them thousands of dollars over a lifetime. Greed can cause someone to overlook risk, also costing them huge amounts of money. Finding a balance is difficult and hard to accomplish.
Emotions Run Deep for a Lifetime
There are studies that show that we establish our financial habits at a young age. If you were raised in a family that struggled financially, it’s likely that influenced your views on money. Most of our views around money are well developed before we reach the age of 10.
If you have a family member who grew up during the Great Depression, that experience is something they carried with them their entire life. Both sets of my grandparents were born in the 1920’s, experienced true poverty, and survived the Depression and World War II. A lot of people I work with inherited those same emotions from their parents or grandparents.
It’s common for those people to be frugal, save as much as they can, and avoid debt as much as possible. Those are very positive traits, but a lot of them also carry a deep fear around money that can rob them of peace of mind. Some are so averse to spending that they don’t get to truly enjoy their retirement years.
My overall point is to acknowledge your emotions around money. It is an unavoidable part of the decision-making process. Your decision around Social Security are no different.
Trends for Claiming Benefits
It’s interesting looking at the data showing what age people decide to claim their benefits. If you go back to 1998, over 60% of Americans were taking their benefits at the age of 62. Over 80% of people were claiming prior to their FRA. Less than 2% of the population was waiting until the age of 70.
Fast forward to 2024 and the trends have changed. Around 30% of people are still filing for their benefits at the age of 62. Approximately 30% are collecting between age 62 and their FRA. 16% of people are collecting at their FRA. The percentage of people waiting until the age of 70 is now around 10%.
There are a lot of reasons why these numbers have changed. Our life expectancy continues to get longer. Many claimants back then saw their parents or grandparents die in their 60’s or early 70’s. The emphasis around retirement savings and income planning has grown over that time. With fewer people getting pensions, there is the reality of most people having less of a guaranteed income stream later in life.
Even though more and more people are waiting to collect their benefits, there’s still many people who are drawing before their Full Retirement Age (FRA). Let’s discuss some of the various reasons why most Americans still take their SSA earlier than later.
The Case for Age 62
I regularly meet people who have essentially decided to take their benefits at the age of 62. They are open to discussion, but they are mainly looking for confirmation. This is where the emotional aspect comes in. Once we start going through the questions, it’s interesting to find out why they feel strongly about their intuition.
The first and most obvious reason why a lot of Americans collect at the age of 62 is economic necessity. Due to their circumstances around health, family, and employment, they cannot afford to wait longer. For these people, the dollar figures and various scenarios around waiting may be compelling, but they aren’t much of an option.
The cost of waiting for these people would simply be too detrimental to their overall financial health. Collecting as soon as possible brings critical income into their personal economy that allows them to stay financially solvent.
For other people in this group, there is a compelling case for them to wait. Their circumstances allow them to consider other options. However, this is where the emotions take over. Again, this isn’t meant as criticism, it’s human nature all of us deal with! There are common themes that tend to come out of these conversations that we’ll briefly discuss.
This is My Time
People with the “it’s my time” mentality take a strong sense of ownership with their benefits. These are people who were paying attention to that SSA tax that came out of their paycheck for all those decades. In their mind, they earned those benefits, and they are ready to collect.
I find people in this group also have a “bird in the hand” viewpoint towards the entire SSA program. A lot of people worry that SSA is going to be eliminated or greatly reduced in their lifetime. For them, it is better to take what you can now than to gamble and potentially end up with nothing. They have a strong aversion to loss and don’t want to risk it.
No one can predict the future. None of us can say with certainty what will happen to SSA. There’s a lot of talk about 2034 and the solvency of the program past that date. It’s been a political football for decades, with both political parties continuing to “kick the can down the road” when it comes to addressing that issue.
The Future of Social Security
My overall feelings are that we are at a point where the program cannot be eliminated. First off, SSA is an extremely popular program. People from all sorts of political persuasion overwhelmingly approve of SSA and oppose any cuts to benefits. Any politician who goes after the SSA program is likely not to be in power very long and their political party would likely be damaged beyond repair. Besides, the people who make the laws also pay into the system. I’m sure they want their piece of the pie.
The other huge consideration is the financial reality. There are millions of people who rely on SSA for their only source of income. That trend will only continue to grow, due to the economic realities of recent years. Reducing or eliminating SSA benefits would immediately put millions of people in the streets, impacting some of the most vulnerable members of our society. It would cause a level of misery that would rival or surpass the economic fallout of the Great Depression.
Will the program look different in future years? That is certainly a strong possibility. However, I caution getting caught up in too much fear about the future of the program. If you are wrong, that could cost you thousands of dollars over your lifetime. It’s important to acknowledge this fear and at least take time to consider other options.
It’s Out of My Control
People with the “Out of My Control” viewpoint tend to find the whole process overwhelming. They acknowledge that they can’t tell the future, but they tend to have paralysis by analysis (even though they won’t admit it). Instead of looking at different strategies and being patient, they just want to get the whole thing over with. It’s just easier to start their benefits and put the decision behind them.
A lot of these people tell me that they feel like it really doesn’t make a difference what they decide. They feel like they will be OK regardless of what they go with. There are some good things about that, since they tend to be less fearful. But it still doesn’t mean that is the right strategy for them to execute. They might say “it is what it is”, but that can be a costly attitude towards retirement income.
Once again, none of us can predict the future. But many people in this group are better served by waiting to collect their benefits. With just a small investment of time and money, they can get accurate data and strategies in place that might add thousands of dollars of income into their retirement years.
Take This Job and Shove It
It’s probably not a stretch to say that most people don’t like their jobs. Back when I worked in corporate America, there were so many people who were miserable at work, and they made sure you were aware of it. I remember several of my colleagues had apps on their smartphones that provided a countdown to the day they could retire. It wasn’t unusual to hear something like “Only 2 years, 8 months, and 55 days to go” during a team meeting.
Many of those people had planned for their retirement. A good number of them were in their mid-to late 60’s and were waiting until at least FRA to collect SSA. But I have noticed a trend of people “retiring” at 62 or earlier and starting their benefits even if it’s not in their best interests to do so.
Some of these people leave their jobs out of sheer frustration, which is completely understandable. But I have worked with a large group of people who left too soon and created an income problem. Some didn’t realize that if you start your SSA benefits at 62 and then need to work again before you reach FRA, there are potential income penalties if you earn too much money. They ultimately regretted their decision, even though it felt amazing at the time.
Avoiding Regret
There’s data to support this concern. Many studies over the years say that between 20% to 40% of retirees regret taking their SSA benefits too early. Many of those individuals mentioned that loss aversion and a sense of ownership compelled them to collect sooner than later.
It’s not always the ideal situation, but I often find an extra year or two of working can make a huge difference not only for SSA, but for retirement income in general. It’s never an easy decision, since the dreams of retirement have a strong emotional pull for good reasons. Retirement goals, circumstances, and income needs should be carefully analyzed.
Right Decision at the Right Time
It’s impossible to take emotion out of the decision around SSA. My goal is always to help manage that emotion. It’s helpful to consider other scenarios and the pros and cons that each of them present. Even if you have “tunnel vision” and decide “it’s your time”, taking at age 62 may ultimately be the right choice.
If we could predict the future, we could make the right decision every time. If we knew how long we were going to live and how healthy we are going to be, that would make SSA planning easy. Dealing with the unknowns around our health and life expectancy are a challenge.
My goal is to help you balance the emotional aspects of SSA by also providing data driven decision making. Ultimately, you must make the decision that feels right based on what you know at the time. There’s always risk involved, but planning will help mitigate it in the best way possible.