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.

In addition, Weiss notes that both plans would be paired with an elimination of earnings penalties currently applied to recipients between early retirement and full retirement age whose earnings exceed a given threshold.

“If we tweak the system a little to allow people to reap the benefits of retirement gradually it would keep a lot more people in the workforce," Weiss says. "We wouldn’t be pushing so many people to retire when they aren’t ready or don’t need to.”

The second proposal, A New Bridge Benefit under Social Security, also gives workers flexibility to address their unique situations. This proposal, Weiss says, recognizes the reality that there are a lot of people claiming early because they don’t have a choice due to chronic health problems or the inability to find a job. They would have their benefits boosted so there would be no penalties between early claiming and normal retirement, she says.

The bridge benefit for workers ages 62 to 66 would be an add-on benefit to their early retirement benefits. It would fill the gap left by other cash and in-kind assistance programs by paying half of the difference between the worker’s full retirement benefit and the early retirement benefit at each age prior to the normal retirement age, starting at age 62 through 67.

A worker who retires at age 62 and currently receives benefits permanently 30% below their full retirement benefit would instead receive benefits 15% below; a 63-year-old retiree would receive benefits 12.5% lower rather than 25% lower; a 64-year-old would see a reduction of 10% rather than 20%; and a 65-year-old would have benefits 7.5% lower instead of 15% lower. At the current full retirement age of 67, they would begin to receive full benefits as if they had not claimed early.

“What’s nice about this proposal is that it also in the end is budgetarily neutral because it goes into other aspects of Social Security, removes some of the benefits from people who frankly don't need them and are just getting benefits for no reason, and uses those to pay for this so it doesn’t cost Social Security anything in the long term,” Weiss says. 

The bridge plan is progressive, she says, with relatively larger benefits for lower lifetime earning workers, and would particularly benefit women, workers with less formal education and workers of color who struggle the most. The proposal calls for a capped amount so that it does not exceed the amount that would be received by a worker of the same age whose primary insurance amount (PIA) was based on 35 years of earnings equal to the average wage index (AWI).

For example, a worker who qualifies for the bridge benefit would receive 85% of her full retirement benefit as long as that amount is smaller than 85% of the PIA based on the AWI for that year. A qualifying worker would not receive an additional bridge benefit if her early retirement benefit is already greater than 85% of the full retirement benefit that someone would receive with 35 years of earnings equal to the AWI.

The groups' third offering, Creating a Federal Auto IRA and Enhancing Social Security Longevity Data, calls for creating a federal IRA with automatic enrollment to help workers without access to a 401(k) or similar plan for retirement. It also calls for disseminating enhanced longevity data to the public and sharing this information more widely and more frequently. Such data, the proposal noted, will help individuals who struggle to predict their own—and their partner’s—mortality to anticipate late-life health, employment or other shocks in order to better plan for their retirement needs.

The final proposal, State Supplemental Social Security, mirrors a proposal from Washington state where the state government offers a parallel system to Social Security. The Supplemental State Security programs, Weiss explains, would not only benefit many workers who lack access to—or do not currently participate in—a workplace-based retirement plan, but also the many millions of workers who have to retire earlier than planned and/or households with limited savings.

Weiss posits that the four proposals complement each other. “They balance being innovative and are practical and implementable,” she says, adding that the group understood that improving retirement security is a complicated issue. “And the more angles we could come at it from, the better off we would be.

“One of the things we discovered while doing this work was that there was so much that we do not understand about older workers, and especially older workers who are vulnerable in terms of retirement security.” Weiss adds. She notes that NASI and AARP plan to continue to understand the specific challenges so they can propose and advocate for better policies.