The relationship of financial stress with the timing of the initial claim of U.S. Social Security retirement income

Abstract

• Early claiming of U.S. Social Security retirement benefits reduces yearly benefits. • The higher is financial stress the less likely is an early benefit claim. • Increased earnings at age 60 tend to delay claiming retirement benefits. • High financial stress increases the likelihood of raised earnings delaying claiming. A large number of U.S. adults claim Social Security benefits at age 62, substantially earlier than the government specified full retirement age. One implication of an early claim is a reduction in the amount of future monthly benefits. The literature on the timing of Social Security claiming has developed numerous hypotheses to explain this behavior; however, previous empirical work has found few factors are statistically significant explanators of early benefit claims. We propose a new test concerning why some older adults claim Social Security benefits early; specifically, we test whether the level of an individual’s financial stress prior to the claiming decision is associated with a benefit claim at age 62. Our analysis finds that the greater the level of financial stress prior to claiming, the less likely is claiming, controlling for many aspects of an individual’s financial, social, and demographic situation. Comparing two individuals, we find that a person with a relatively high level of financial stress is 4 to 7 percentage points more likely to delay claiming Social Security benefits than a person with a low level of financial stress. We also find that earned income moderates the relationship between an individual’s financial stress and early claiming, where the same increase in financial stress is more likely to result in a delay in claiming for those with higher earnings than those with lower earnings.