According to new research by the Center for Retirement Research at Boston College, US households are claiming their Social Security much later than they did ten years ago. In 1995-1999 over 50% of eligible 62-year-olds claimed Social Security as soon as they could. Ten years later, less than one third did.
The study goes on to find that a major cause of this consistent decline is that employer-sponsored retirement plans have shifted from defined benefit (DB) to defined contribution (DC). A defined benefit plan, also called a pension, is a promise from your employer to pay you a set payout every year once you have retired. A defined contribution plan is commonly referred to as 401(k) or 403(b) plans. These are accounts that you consistently contribute money out of your paycheck to save for your own retirement. Defined contribution plans are the most common forms of employer-sponsored retirement plans. Because of this, people are pushing back their retirement, opting to work for a couple years more so they can afford the retirement they want. A couple extra years working can mean thousands more dollars saved up in a 401(k) plan.
The study also found that improvements in health care are playing a large role in the ability to push retirement off past age 62. As health care improves, people are able to stay longer in the workforce, giving them the chance to add more to their retirement fund before taking that retirement step. The longer worker’s wait to claim their Social Security, the larger their monthly Social Security benefit is. This is a large incentive to wait to claim Social Security if workers can afford to do so.
The other changes mentioned in the study were lowering mortality rates and changes to Social Security rules and regulations that make it harder to retire earlier.
Although the trends state that working longer and waiting to claim Social Security is the popular choice, that doesn’t mean it’s best for everyone. Deciding when the best time to retire for you is going to rely on a lot of personal factors. No matter whether you decide to retire the first chance you are able, or if you decide to wait longer, what is important is being realistic about your goals to make sure you can have a successful retirement.