A surge of early retirements and a decline in payroll tax revenue caused by the recession have begun to cut deeply into Social Security's surplus funding.
Led by aging baby boomers and older workers frustrated by the tough job market, record numbers of eligible Americans started receiving Social Security retirement benefits in 2009.
According to government figures, more than 2.7 million new beneficiaries were added to the rolls in 2009, up 20 percent from 2008. The one-year increase was the largest since at least 1975.
"Much of that surge is coming from the weak economy," said Richard Johnson, a senior fellow at the Urban Institute. "The fact that many people can't find work is forcing them to retire and collect benefits early."
Annual jobless rates for men and women age 55 and older were higher in 2009 than at any time since the government started collecting the data in 1948, Johnson said.
That forced many to claim retirement benefits at 62, their first year of eligibility, instead of waiting to collect at the full retirement age of 66.
Also fueling the increase was the leading edge of the baby boom generation, more than 3.4 million boomers who turned 62 in 2009, Johnson said. That was 9 percent more than in 2008 — the first year that any baby boomers, those born between 1946 and 1964, were eligible for Social Security retirement benefits.
Because of the recession, trustees of the Social Security trust fund warned last year that the diminished 2009 surplus would "stay about constant in 2010 because of the economic recession" and "rise only briefly before declining and turning to cash flow deficits beginning in 2016 that grow as the baby boom generation retires."
The program's shaky finances were one reason that Arlie Collins, a retired plumbing contractor from Greensboro, Ga., applied for his benefits three months before he turned 62 in December.
Collins was among 1.3 million men age 62 and older whose retirement benefits began in 2009, according to Urban Institute research.
That was up 20 percent from 2008 and the most new male beneficiaries in any year since Social Security payments began back in 1940, Johnson said.
Collins didn't mind that Social Security would reduce his monthly payments by about 25 percent, or roughly $250, for starting to collect at 62 instead of 66. After talking with an accountant, Collins determined that he was better off getting less money now than he would be if he waited for larger monthly checks later.
"I did the math, and if I had waited for my full retirement (at age 66), I would have had to wait until I was 82 or 83 years old before I made up the money I was getting between 62 and 66," Collins said. "To tell the truth, I wasn't really sure if Social Security would be around when I'm 82, or at least in the same form."
Since Social Security allows retirees to earn up to $14,100 a year before their retiree benefits are penalized, Collins plans to supplement his Social Security payments with some plumbing jobs and the $3,000 to $4,000 he earns each year as the chairman of the Greene County Board of Education.
More older workers appear to be following Collins' lead.
In fact, about 72 percent of boomers will likely claim their Social Security retirement benefits early, "which is expected in a down economic cycle," said Richard Fiesta, the director of government and political affairs at the Alliance for Retired Americans.
Many older employees are continuing to work, however, despite the poor economy. In fact, labor participation rates for men and women age 62 and older increased last year.
Jason Fichtner, the chief economist at the Social Security Administration, said many are hanging on to recoup losses that their 401(k) retirement accounts suffered during the economic crash.
"There are some who said, 'I was going to retire this year or next year, but my 401(k) is now a 201(k), so I'm going to keep working until I'm 68 or 70,' " Fichtner said.
The accelerated pace of early retirements and declining payroll tax revenue could turn the program's shrinking surplus into a deficit this year by causing even more benefits to be paid out sooner than expected.
Current projections show the program has sufficient funds to remain solvent until 2037, but the trustees have warned that "long-run program costs are not sustainable under current program parameters."
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