Many older Americans are unable to work or have had to cut back on hours due to physical ailments, the need to care for aging parents and loved ones, or because of difficulty finding a job due to late-career layoffs.

And as policy analyst Elaine Weiss points out, retirement is not a suitable option for many of these workers who probably have not saved enough money for retirement. So when they reach age 62 and can begin to claim Social Security, they do so at the risk of severe penalties for the rest of their retirement years.

"Taking those penalties is going to really hurt them,” says Weiss, the lead policy analyst for income security at the National Academy of Social Insurance (NASI). She adds that some people who work physically demanding jobs or have serious health problems sometimes aren't able to work until age 62, so they don’t meet the requirement for benefits under the Social Security Disability Act.

In an effort to find solutions to help support these workers and make their retirement more secure, NASI, in collaboration with the American Association of Retired Persons (AARP), engaged in crowdsourcing and chose six people from different backgrounds to participate in the Social Security Policy Innovations Challenge, a year-long process.

The group presented a package of four proposals, two of which directly addressed Social Security. The other two addressed savings options for American workers.

The first proposal, Social Security Early Commencement Benefits, would make it easier for workers who unexpectedly leave the workforce to claim partial benefits. “Right now, we have an all-or-nothing system when it comes to early claiming so when you get to that point where you have to make this big benefit that affects your finances for the rest of your life, you don’t have any choice to make,” Weiss says.

With this proposal, the benefits workers receive would still be reduced but to a lesser degree than if they had begun full commencement, making this change actuarially equivalent, or neutral, Weiss explains.

For example, for a part-time worker claiming half benefits at 62 whose full monthly benefit was $1,000, this option would provide that individual $350 in additional monthly income (half of the $700 he would have received), on top of his income. When it's time to receive his full benefit at age 67, he would then receive $850 per month ($350 for the continuing age 62-commenced portion and $500 for the half begun at age 67), rather than the $700 he would have gotten. And because benefits are increased by 8% for each year of delay from ages 67 to 70, waiting to collect full benefits until age 70 means the ultimate benefit would be $350 + $500(124%) or $970, equivalent to what he would have received had he not claimed early at all.

The proposal also calls for people who are unemployed for long spells to be able to claim early and then un-claim when they go back to work without penalty. And while it’s noted that there are already existing strategies to start, stop and restart Social Security benefits, they are not accessible to the average worker. This plan would extend such flexibility to all workers.

For example, if a worker was to stop benefit collection at age 64 and then resume at age 67, the reset benefit reflective of two years of foregone benefit collection would be $913. If the individual delayed ultimate retirement to age 70, the total benefit would be $1,151 (compared to $1,240 if the retiree had never commenced until age 70). The proposal noted that these calculations are based on 4% real interest, annuity factors which are a close match for actual Social Security factors.

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