Media coverage of Social Security could affect claiming age

It’s no secret that the Social Security system’s trust funds are projected to be depleted by 2034, but the way that news is presented to people could influence how likely they are to start claiming early.

Results of an experiment conducted by researchers at the Center for Retirement Research at Boston College found that workers who were shown headlines emphasizing the depletion date planned to begin claiming Social Security a year earlier, on average, than those in a control group.

There is no shortage of news coverage of that topic, which recently has been extensive, following the Social Security Board of Trustees’ report in August that showed reserves being depleted a year earlier than previously thought. That earlier date is in part due to the effects of the pandemic.

“[N]ews coverage of the Trustees Report often emphasizes the trust fund depletion date and de-emphasizes the ability of ongoing revenue to support three-quarters of scheduled benefits. This emphasis could lead the public to believe that all future benefits are insecure,” authors Laura Quinby and Gal Wettstein wrote in the recently published paper. “If workers respond to their misperceptions, they might adjust their behavior in ways that could either harm or enhance their retirement security.”

That harm would result from claiming earlier than they would have planned, with the mindset being that they would not be affected by reforms to the system in the future, the authors stated. For example, starting claims at 62, rather than the full retirement age, results in monthly benefits that are 30% lower, according to the paper. The full retirement age for people born between 1943 and 1954 is 66, while it is 67 for those born from 1955 to 1960.

Claiming early can also lead to lower total payments over a lifetime, according to prior research, the authors noted.

Focusing on the trusts’ depletion might logically be expected to have a positive result for some.

“Conversely, workers might insure against low Social Security benefits by saving more on their own, a response that would improve their retirement finances at the expense of current consumption,” the paper read.

However, the results showed that although claiming behavior changed in response to headlines, savings behavior did not.

“In no case do workers plan to increase their saving to offset future benefit cuts,” the authors wrote.

The more than 3,000 participants in the experiment were shown one of four headlines for otherwise identical news stories about the projected 2034 depletion date for the reserves. The control group saw the headline, “Social Security Faces a Long-Term Financing Shortfall.”

Others were shown, “The Social Security trust fund will deplete its reserves in 2034,” or a more extreme headline, “Social Security fund headed toward insolvency in 2034, trustees find.”

But another version emphasized the money flowing into the system: “Revenues projected to cover only 75% of scheduled Social Security benefits after 2034.”

After reading the headline they were assigned, the participants were asked when they planned to retire, when they anticipated claiming, what percentage of current benefits they expected to receive, what their current savings rate was and whether they planned to adjust savings going forward.

The participants outside of the control group were more likely to anticipate a reduction in future Social Security benefits. Those shown the headlines about depletion were 7 percentage points more likely to expect 40% to 60% of the current benefits, the authors noted. However, those shown the last headline, which emphasized revenues going into the system, “were more likely to anchor on the correct answer — 60% to 80% of scheduled benefits.”

That effect was more pronounced in people in their “prime” working years, or those age 25 to 54, who were 12 percentage points more likely to accurately peg the likely reduction in benefits, according to the report. Workers nearer to retirement age “did not change their expectations.”

Prior surveys have shown that younger people have lower expectations about Social Security. And according to a report earlier this year from Schroders, about 10% of working-age people plan to delay claiming until age 70.

Although Social Security was listed as the top source of retirement income for workers in the Northwestern Mutual’s 2020 Planning & Progress Study, about 20% of people said they did not count on money being available from the system by the time they’re ready to retire.