July 24, 2012
Little Thought Put Into Retirement Date
When to make the break and apply for Social Security benefits is one of the biggest financial decisions an individual will make. But new research suggests that people may put more thought into buying a car or a mattress.
The goal of a new research study was to determine how people make this critical decision and how to possibly influence them to delay claiming – delaying is often the best thing financially for retirees, since doing so increases their monthly benefits.
But what’s striking is a basic finding of the research. Individual decisions about the timing of an application to start up Social Security benefits depend simply on the order in which the person thinks about the benefits of his actions: those who first think about the advantages of claiming early – before they consider the advantages of claiming at a later age – prefer to claim early, and vice versa. That’s it!
This finding, which comes out of the Columbia Business School’s Center for Decision Sciences, complements one survey that found that close to half of all people contemplate their date of retirement for no more than 12 months.
For most Americans, the default age for starting up their Social Security benefits is 62, when workers first become eligible for them. So the researchers looked into the decision-making process by changing this default frame of mind: they prompted some of their research subjects to think about the benefits of claiming their benefits early – wanting to relax in old age, current financial problems, or concern they will not live to a ripe old age – before asking them to think about delaying claiming.
Another group was prompted to think first about the benefits of waiting to claim and, only after that, to consider early claiming. Benefits of waiting might include having a bigger monthly Social Security check and more money for medical bills, enjoying work, or a family history of longevity. (Other research shows that people are not very good at predicting their own life expectancy).
“Asking participants to list thoughts favoring later claiming before listing thoughts favoring early claiming encouraged participants to treat later claiming as the implicit default,” the Columbia study concluded.
Think about that.
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA), including some research funded through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government.