The psychology of Social Security claiming

By Jeffrey Steele

For Five Cent Nickel

Published: Wednesday, Oct. 16 2013 2:35 p.m. MDT

This Jan. 11, 2013 file photo shows the Social Security Administration's main campus in Woodlawn, Md.

Patrick Semansky, Associated Press

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Editor's note: This article originally ran on the website Five Cent Nickel. It has been reprinted here with permission.

Philosophers, op-ed writers and other big thinkers are among the many folks always scouring for linkages between seemingly disparate trends and occurrences.

Want a few examples? Well, there’s the link between the need for World War II defense workers and the post-war emergence of the film noir femme fatale. There’s the connection between choosing zero percent APR credit cards and the inclination to take longer vacations. And there’s the tie between the proliferation of karaoke bars and the surge in sales of earplugs and replacement glass.

But there’s one linkage I believe can never be explored, discussed and analyzed enough. That’s the link between psychology and personal finance behaviors.

I can’t begin to enumerate the times I’ve examined the approach to money of friends and acquaintances, and seen — or thought I did — connections between saving woes and self-esteem issues, associations between spending and feelings of loneliness, bonds between indebtedness and delusions of grandiosity.

Scratch many big spenders, and you may find people still embarrassed by the humble homes in which they were raised 30 years before. Psychoanalyze women whose closets bulge with clothes they’ve never worn, and you may find ladies seeking to assuage deep-seated unhappiness through wanton consumerism. Focus on siblings with 180-degree-different approaches to money, and you’ll often find one more motivated by fun, the other more driven by fear.

A head-scratcher

So it was that I rejoiced when notified that a couple professors had finally zeroed in on one of the biggest puzzlers in the entire American money management realm, the choice of when to start monthly Social Security checks.

Even the most cursory look offers convincing proof that you will profit from delaying taking benefits and thus claiming larger monthly payments over your entire lifespan. Nonetheless, it is very common for Americans confronted with this choice to show as much restraint as would a cheetah over a fresh antelope kill. They lunge for their Social Security checks at the earliest possible age, 62.

By doing so, they lock in the lowest possible monthly Social Security payments — and they ensure they will suffer those low payments the rest of their lives.

In fact, in talking to people who have arrived at this decision tree and made their choice, I can’t recall one who delayed payments. All chose to ignore the widely available advice of financial planners and retirement experts to postpone taking Social Security until around the age of 70, and by so doing treat themselves to payments 80 percent larger than those if the stream is begun at age 62.

Four influences on claiming

Recently, the professorial duo of UCLA’s Suzanne Shu and Duke University’s John Payne collaborated on a study that revealed four powerful psychological traits that influence decisions to take Social Security. The first is the individual’s feelings about his or her life expectancy. The second is his fear of losing money. The third is whether or not she believes the Social Security system is fair. And the fourth and final trait is, not surprisingly, the individual’s level of patience.

About 3,000 people, most in their 40s and 50s, were surveyed in the study, whose findings were reported at the August meeting of the Retirement Research Consortium in Washington, D.C. People younger than those at Social Security-claiming age were chosen because they think about the issue, but haven’t yet acted on their plans. Shu and Payne used online surveys to ask respondents a series of questions, each designed to drill down into respondents’ psyches.