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Delaying retirement boosts Social Security checks

It’s no secret that American workers face a major retirement crisis. Wealth inequality and workplace changes mean more and more retirees have come to rely on Social Security for most of their income. But the average monthly Social Security benefit in Maryland is $1,472 — or roughly $18,000 per year, which is only slightly above the federal poverty line. And even with Social Security, some 7 percent of Maryland’s seniors live in poverty.

The good news is that Maryland 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, and waiting until after the current full retirement age of 66 yields even greater gains — up to 44 percent more than early claiming.

But too few Marylanders are taking advantage of this “delay-and-gain” strategy, or are even aware of it. The average age for claiming Social Security in Maryland is 64 — two years older than the minimum, but early enough to be penalized with lower benefits, which are cut by roughly 6 percent for every year that they file for Social Security before the full retirement age.

Traveling around the country, I have often heard from retirees who don't have enough money to keep up with expenses. The costs of essentials like health care, housing, utilities and groceries are rising every year. People are living longer, meaning seniors must survive on their fixed incomes even longer. 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 chooses to claim 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. Of course, if she claims at the FRA of 66, the worker realizes her full monthly benefit of $2,000. Not only will her benefits be higher by waiting, so will the dollar value of her annual cost-of-living increases designed to help retirees keep pace with inflation. Workers can use the Social Security Administration’s online calculator to determine benefit amounts at different ages.

Women face 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 of color have even more reason to maximize benefits. Average Social Security checks for African-American women are 25 percent lower than men’s, while Latinas’ checks are 31 percent lower. Waiting to claim Social Security until at least full retirement age mitigates these inequities.

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, the program would still be able to pay 80 percent of benefits at that time. There is common sense legislation in Congress right now (cosponsored by Maryland Reps. Elijah Cummings, C.A. Dutch Ruppersberger and John Sarbanes) 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. People who reach age 65 today can expect to live nearly 20 more years.

Of course, not everyone can wait to claim benefits until full retirement age. But for Marylanders who are able to continue working, it pays to delay and gain.

Max Richtman (Twitter: @MaxRichtman) 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.

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