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Economist Richard Thaler argues in the New York Times that more people should wait to claim Social Security benefits. The logic is straightforward. People like guaranteed income, which Social Security provides, and the Social Security annuity is adjusted for inflation. Although private annuities exist, they tend to be costly, unindexed, and they're not guaranteed by the government. (Thaler dismisses the worry that Social Security benefits could be cut back for current retirees when the trust fund runs out because old people are a large voting bloc. I agree.)
Moreover, as Thaler points out, you have the option to increase your Social Security benefit, simply by waiting to claim. Waiting to retire for 4 years from age 62 to age 66 increases benefits by about 1/3. Waiting until age 70 increases the monthly check by 75 percent. Thus, you can effectively buy a bigger annuity by waiting.
Here's Thaler:
With these rules, waiting is the cheapest way to buy more annuity coverage. However, few take advantage of this opportunity. Currently, about 46 percent of participants begin claiming at 62... Less than 5 percent of participants delay past age 66, [the so-called normal or full retirement age]. This is unfortunate. If you are in good health and you can afford to wait, my advice is that you should wait as long as possible. The greater is your guaranteed lifetime income, the easier it will be to organize your retirement budget, and the less you will worry about living “too long.”
Thaler also suggests that we expunge "normal retirement age" from the Social Security lexicon.
Benefits at that age are not “full” and retiring at that age is not “normal.” Research shows that the designation of a full retirement age can serve as an anchor that influences people’s choices, and may help explain why so few people delay claiming past age 66.
He goes on to endorse a suggestion by benefits lawyer, Pam Perun, that Social Security allow people to buy larger annuities. Basically, SSA would guarantee low-cost private supplemental annuities that would be integrated with the government program.
There's an even easier step that Congress could take right now, which is to extend "delayed retirement credits" past age 70. Under current rules, benefits increase only until age 70. If benefits continued to increase for people who waited longer to start collecting benefits, Social Security could provide a very valuable form of insurance against outliving your money. People with substantial 401(k)s or other savings might wait until age 80 or even later.
There'd probably have to be a downward adjustment of benefits for people with much younger spouses. But that would be straightforward. And it might encourage some older people to keep working longer than they do now, and keep paying income and payroll taxes on their earnings, which would make a tiny positive contribution to our dismal public finances.
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