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Claiming Social Security benefits early disproportionately hurts people with lower incomes

Written by Diane Archer

A  GAO report analyzing the characteristics of people who claim Social Security benefits early raises two questions that deserve far more attention than they get: 1. Should people claiming Social Security benefits early–at age 62–be receiving higher benefits to compensate for shorter life expectancies? and 2. Doesn’t raising the age at which people claim Social Security disproportionately hurt blue-collar workers?

According to the Government Accountability Office, people claiming Social Security early typically have significantly lower incomes than people who wait until they are 66 to claim full benefits. A higher proportion of people in blue-collar jobs and people without a college education claim these benefits early than other Americans.  The penalty they accept for claiming benefits early is a 25 percent reduction in benefits for the rest of their lives. As it is Social Security benefits in the US are stingier than in most other wealth countries.

The Social Security benefit cut for these early claimants can seriously jeopardize their retirement security. They often rely primarily or exclusively on Social Security for their income. Their reduction in benefits stems from a calculation that is intended to equalize the benefits Social Security delivers to an individual based on the age at which that person claims Social Security. Assuming people with lower paying jobs lived to the same age on average as people with higher paying jobs, it would.

But, the government calculation intended to equalize benefits based on when people elect Social Security discriminates against lower income workers who claim benefits early. Essentially, they are paid lower benefits because they are expected to receive four years more of benefits than people who claim benefits at 66. More often than not, however, they don’t enjoy more years of benefits. People with blue-collar jobs and without a college education typically live shorter lives—typically 5.8 years fewer–than the top half of Americans.   The government calculation does not take into consideration this significant difference in life expectancy between these lower income workers and higher income workers.

Adjusting Social Security benefits based on people’s income levels and life expectancies would be fairer than the current system, but it would be difficult to execute in practice.  However, reducing benefits for blue-collar workers who don’t live as long as white-collar workers and who depend more heavily on their Social Security benefits in retirement threatens their retirement security.

Bringing the eligibility age for Social Security back down to 65, rather than raising the eligibility age up from 67 would help people with lower incomes in retirement.  However, it would increase Social Security expenses and still would not compensate blue-collar workers with shorter life expectancies.  Raising the age of eligibility for Social Security, as some are advocating, would only make it that much harder for lower-income workers to manage financially in retirement and further discriminate against them.

Strengthening Social Security, so it allows people at all income levels to retire with dignity should be a government priority. Expecting people to work longer until they can claim full Social Security benefits sounds good in theory, but delaying retirement and working longer is only an option for people lucky enough to have jobs or in good enough health to perform the jobs available to them. As we know, many people with low incomes in blue collar jobs struggle to keep them into their 60s. And, when there are jobs available for them, they can be physically taxing and not jobs they can perform any longer.

The best solution for treating people with lower incomes more fairly would be to increase Social Security benefits for people with lower incomes in a progressive way.  If we expand Social Security benefits as many members of Congress are now calling for, it would be easy to design the increase to disproportionately go to those with the lowest earnings. Our retirement policy should focus on ending what amounts to discrimination against a large cohort of people with lower incomes, not aggravating the discrimination through raising the retirement age.

If you’d like to understand what your retirement benefits will be when you retire, click here. If you’d like to read more about how to strengthen Social Security, click here.  Polls show that a strong majority of  Americans support strengthening Social Security. And, if you’re interested in reading more about the growing inequality gap for older adults, read Theresa Ghiraducci’s Senior Class: Americas Unequal Retirement in the American Prospect. 

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10 Comments

  • The article is true, but forgets that Social Security is supposed to pay better those who put in more. If it becomes a welfare program rather than a program that supports everybody in proportion to the amount that they put in, it is in danger of losing support from those who are better off, who are still the majority. That is why FDR designed it as he did and called it a trust. If you want a welfare program for the elderly, it should be called such. Of course, then it won’t get much support . . . How would it fly to offer those who are getting huge payments a chance to donate some of it to the less well off voluntarily? Some might do that . . . especially since you cannot will Social Security benefits to anyone else after you die.

  • “If we expand Social Security benefits, as many members of Congress are now calling for, it would be easy to design the increase to ‘Disproportionately’ go to those with the lowest earnings.”

    I am confused by the above sentence, especially the word “Disproportionately.”

    An increase that Disproportionately goes to the lowest earners? Isn’t the increase supposed to help the lower earners??

    Please comment. Thank you. E. Henegar.

    • ROMNEY’S 2012 PLAN CUTS MEDICARE Ron Paul’s plan cuts $1 trillion the first year and it bnleacas the budget in 3 years. The plan cuts spending by ending the costly unconstitutional foreign wars, and cuts foreign welfare, corporate welfare, and overgrown federal bureaucracy. These cuts are made so that those who are dependent on domestic spending programs such as Medicare aren’t endangered through a sudden change in benefits. Romney’s plan cuts Medicare, on which many elderly Americans rely.

  • Our elected officials no longer do what the people say, but rather what benefits THEM the most. And they are not going to stop helping themselves and their cronies unless they are forced to do so.There is so much waste,and its not social security, or any help programs,its mostly what our elected officials and lawyers steal.Laws are passed that we have to have insurance but they can charge what ever they want,same with all laws!!

  • The “EXPERTS”.
    The Analysts and Theorists and PHDs all ASS-U-ME that we al lstop working and start taking Social Security because it’s ‘More Convenient’ and cost effective for us or maybe because we’ve grown ‘LAZY’ in our old age and we prefer to MOOCH on our Kids and Grand kids.
    TRUTH is that most of us would GLADLY keep working and EARNING our own ways.
    We’re sick and Tired of our Arthritis, and memory loss and Bursitis and tendonitis.
    We wish our hurts healed like they did 30 years ago and we didn’t have the ugly marks from Cancer surgeries or the ugly Cancers we can’t afford to get removed.
    We wish we could be 25 again and able to leap tall buildings and conquer the Impossible Dream
    We wish we’d known (throughout the Decades) , while we were paying for our own Social Security and Medicare and accepting the Tax increases and Lowering of Benefits and raising of the Age limits, that the promise “In Good FAITH”, wasn’t meant for US.

  • Postponing applying for Social Security benefits after you turn 65 (or full benefits) can have a down side too. Beginning with 2016 Medicare increases your premium cost for Medicare Part B from the standard $104.90 to $121.80. If your projected Social Security benefits are not large, the increased cost for Medicare Part B may significantly eat into whatever Social Security benefits you were hoping to receive by delaying the start of your benefits.

  • Well when the economy fell, social security now means very little to most people who depend on it.
    We cannot all be upper middle class. I, for instance, had a great career til I fell sick with an autoimmune illness that doctors couldn’t really identify. So even though I worked all my life, I will get very little social security because as of right now I can only work 25 hours a week and each day I struggle to make it through work. Social security was never proportionate, there is a cap remember for the richest. We wouldn’t want them to pay in their fair share, they might not be able to buy that million dollar summer home.

    Instead of taxing the people with the largest incomes, who don’t really rely on Social Security, they raised the age at which we can collect Social Security, which is normally the poorest and normally are widows of men who worked while they raised the children.

    • Pretty Bitter !
      “WE” the People have the Tool to Fix the Problems but we have given our powers to “Representatives” and they have so many “Interests” outside of “WE” the People that “WE” are ‘Secondary’

  • SS benefits for people who worked in lower paid jobs (I always made more than minimum wage, but not much, and the years leading up to the 2008 crash (and beyond) saw low or no raises) are pathetically low. IF I can make it to 66, it will be just over $1000/month. Who can pay rent, utilities, Medicare, and food on that? I didn’t work for companies that had retirement pensions for nearly my entire “career” and was unable to save much after bills were paid. Throw in job loss and being hard-pressed to find any job now (after age 60, apparently, we aren’t good for anything, and retail is 18-20 hours a week now), it’s damn hard to survive and wait till 66. Nothing like living in a cardboard box after working and supporting yourself decently all your life. The US is no place for the non-wealthy senior citizen!

    • And Yet over 90% of Americans are ‘Classed” as “Non-Wealthy ?
      And statistics are showing that we are getting LESS-Wealthy every Year.
      WE make up the MAJORITY of Americans yet our Power and influence is 2nd to the Minorities.
      It’s our own fault.
      We’re being Played like a Bass FIDDLE and they’ve got us thinking “We’re GOOD” !

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