Retirees overall started claiming their Social Security benefits at earlier ages due to the economic downturn but while such a decision can provide a source of money earlier it comes at a long-term cost, a recent study found.
The report by the Center for Retirement Research noted that during the worst of the downturn in 2008 and 2009, the percentage of people claiming Social Security at the earliest possible optional age of 62 rose, reversing a long-term trend of delaying benefits.
Under Social Security, the "full" or "normal" retirement age currently is 66. There is a benefit add-on for waiting before claiming benefits up to age 70, while benefits can be claimed as early as age 62, although with a reduction.
The age 62 take-up rate had decreased from 50.7 percent in 1995 to 37.6 percent in 2007, in part reflecting the greater penalty that was phased in as the full retirement age rose from its previous level of 65 on a phased-in basis. However, the rate had jumped up to 42.4 percent by 2009.
"The surge in early claiming during the Great Recession is not surprising; several previous studies have linked high unemployment rates and late-career job loss to earlier retirement. In such an environment, Social Security may provide an important safety net for displaced older workers by providing access to income when it is most needed," the study said.
The pattern held true across all income levels, the study noted, and resulted in claims overall about 10 months earlier than would have been the case without a recession, and about six months earlier compared with what happened in the more mild recession of 2001-2003.
However, it added that "claiming benefits early is not costless. It leads to permanently reduced monthly retirement benefits – for the rest of the beneficiary’s life and for the surviving spouse’s life. The question is whether the increase in claiming came from the poor and vulnerable or the well off and well prepared."
Those claiming earlier ended up with benefits 5 percent lower than they would have received under the previous behavior.