One of the Most Important Financial Decisions You Can Make ...

... is when to begin receiving retirement benefits from Social Security. Related to one of the themes in my last post, a new study discusses how claiming at age 62 can impact widow poverty:

This happens to a significant share of couples, because almost 40 percent of all Americans claim their benefits the same year they turn 62.  But a husband who waits until age 65 can increase his widowed wife’s future benefits by up to $170 a month, according to new research by Alice Henriques, an economist with the Federal Reserve Board in Washington.

What’s interesting about this study of nearly 14,000 older couples is that she teased out how much the husband’s decision was determined by the filing date’s impact on his own benefits, versus the financial impact on his wife’s spousal and, later, her survivor benefits.  Similar research in the past had examined the impact of a filing date on their combined benefits during all their years of retirement.

Henriques was able to show that the husbands, when they made their decisions, took into account the impact on themselves of the claiming date they selected.  But they showed virtually “no response to the large incentives” of having the ability to provide their widowed wives with more income in the future, she said.

If the purpose of Social Security is to provide insurance against outliving one's means of support in old age, then there should be a strong presumption that benefits should rise in real terms during retirement, as other forms of support are exhausted and financial burdens of declining health are increased. In the current system, n individual can do this most easily by delaying the initial receipt of benefits from age 62 to an age closer to 70 (after which benefits are no longer actuarially adjusted).