While one reason delaying strategies look so attractive is that many people believe actual life expectancies are longer than the tables Social Security uses, death is still a fact of life. Current health, family history and other factors can lead one to believe that living into their mid-80s or beyond is unlikely.
Another common negative reaction to the concept of delaying a claim for Social Security benefits stems from the belief that Social Security will not be around to pay later. This is not surprising, given how many people simply don't understand how Social Security works.
As members of the baby boom generation retire and become recipients of benefits, they and their employers also stop contributing payroll taxes to the system. The trust fund is used to make up the difference. When people hear the government estimates the trust fund would be empty by 2033, many assume this means no benefits will be payable.
The fact is that payroll taxes being collected at that time are estimated to be enough to pay around 75 percent of promised benefits. No doubt, a 25 percent across-the-board cut is serious. My FRA comes in 2034 so I can’t help but be concerned. Nonetheless, I think assuming zero Social Security benefits in the future is too cautious a position to take.
I would note that in a recent "Nerd's Eye View" blog post, advisor Michael Kitces recalculated the real return possible from delaying Social Security if benefits were cut 30 percent in the future. Naturally, the returns are not as terrific as they are as Pfau arrived at with no reductions, but the real returns were still better than other "safe" alternatives including TIPS.
Changes are needed, but what those changes will be, exactly, remains a mystery to us all. Myriad changes can affect the attractiveness of delaying. Will the retirement age be raised again, will 62 remain the earliest age benefits are payable? Will delayed credits still exist at the current 8 percent annual rate? Will Congress rescind the ability to "file and suspend" or file a restricted application? Would changes be imposed on people who are currently delaying or just some of those who would have the choice in the future?
Regardless of what you think the answers to those and other questions may be, it is fair to say that the fear of changes that drive many early claimers is not entirely unwarranted. Neither are the other main reasons people claim early -- short life expectancy and simply needing the money.
As noted earlier, someone with a short life expectancy is making a sound choice by claiming early in some cases. I say “some cases” because we have to remember that it doesn't matter which spouse passes away first; the survivor gets only the larger retirement benefit of the two spouses. If the sick spouse has the larger benefit, it is usually best for the sick spouse to delay claiming even though the sick spouse is the one with the short life expectancy. The healthy spouse would be the one to claim early.
While many who claim early are doing so because they living paycheck to paycheck, other Americans need the money for other causes.
One would be a temporary job loss. I recently spoke with a 64-year-old man who had been laid off but was still able bodied and actively looking for work. He had started receiving Social Security benefits knowing that at age 66 (his FRA) he could suspend his benefits and receive delayed credits until he lifted the suspension up to age 70. Further, if he went back to work soon and earned so much as to have benefits withheld, at age 66 his benefits would be adjusted up to compensate for the withheld benefits.