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Early retirement claims increase dramatically

Instead of working longer as the economy worsens, more Americans are calling it quits before age 66. The ramifications could be profound for the retirees, families, government and social institutions.

May 24, 2009|Mike Dorning

WASHINGTON — Instead of seeing older workers staying on the job longer as the economy has worsened, the Social Security system is reporting a major surge in early retirement claims that could have implications for the financial security of millions of baby boomers.

Since the current federal fiscal year began Oct. 1, claims have been running 25% ahead of last year, compared with the 15% increase that had been projected as the post-World War II generation reaches eligibility for early retirement, according to Stephen C. Goss, chief actuary for the Social Security Administration.

Many of the additional retirements are probably laid-off workers who are claiming Social Security early, despite reduced benefits, because they are under immediate financial pressure, Goss and other analysts believe.

The numbers upend expectations that older Americans who sustained financial losses in the recession would work longer to rebuild their nest eggs. In a December poll sponsored by CareerBuilder, 60% of workers older than 60 said they planned to postpone retirement.

Goss said it remained unclear whether the uptick in retirements would accelerate or abate in the months ahead. But another wave of older workers may opt for early retirement when they exhaust unemployment benefits late this year or early in 2010, he noted.

The ramifications of the trend are profound for the new retirees, their families, the government and other social institutions that may be called upon to help support them.

On top of savings ravaged by the stock market decline and the loss of home equity, many retirees now must make do with Social Security benefits reduced by as much as 25% if they retire at age 62 instead of 66.

"When the recession ends and the economy bounces back, there may be a band of people for whom things will never be the same again. They'll still be paying the price for 10, 20, 30 years down the road," said Cristina Martin Firvida, director of economic security for AARP, the nation's largest membership organization for people 50 and older.

For Herman Hilton, 66, of Jacksonville, Fla., a lean 6-foot-2 electrician with a bushy gray beard, the decision to lay down his pliers and screwdriver was born of frustration.

For at least the last 10 years, as he wired new buildings, he was looking toward retiring as soon as he hit 66 and qualified for full benefits. And last fall, like millions of other older workers, Hilton put his "golden years" plan on hold when his 401(k) lost more than a third of its value.

Then last month, his life took another unwelcome turn: Hilton's foreman pulled him aside to tell him that he was being laid off. For several weeks, Hilton collected unemployment insurance. But he soon decided to call it quits and file for Social Security.

"I can live on what I have," Hilton said. "But it's not what I planned on. I won't have the comfort factor of as much of a safety cushion."

That cushion is important. As Americans live longer, the elderly are increasingly at risk of outlasting their financial assets. That's a serious problem for them and their families, who are often called upon to provide assistance.

Because benefits are reduced for people who retire early, the surge in retirements should not have any long-term effect on the solvency of the Social Security system, although it will probably add to the near-term budget deficits confronting the Obama administration, Social Security's Goss said.

The full consequences of retirement decisions made in hard times will become apparent when people who retired early begin to exhaust their savings.

"As they get into their 70s and 80s, it will be increasingly inadequate," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College.

The most severe effect will probably fall on the unemployed widows of workers who retire early, Munnell said. Survivors' benefits also take a deeper cut when people retire early -- reduced as much as 30% for retirement at 62. Because women tend to live longer than men, that leaves them more vulnerable to running out of money as expenses for assisted living and other costs rise in advanced old age.

Significant numbers of workers have long chosen to retire early. In 2007, the most recent year for which statistics are available, 42% of men and 48% of women began collecting Social Security retirement benefits at age 62, the first year of eligibility.

The current recession, the worst since the Depression, is striking when older workers are by historical standards unusually vulnerable. Though older workers in previous recessions were less likely than their younger counterparts to be laid off, that advantage has eroded in recent years, said Munnell, who analyzed more than two decades of Labor Department data on layoffs.

Fewer workers are now protected by union contracts that require newer employees to be laid off first. And older workers now typically have less of a seniority advantage in a workforce that more frequently switches jobs.

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