Here at the AgingOptions blog we read a lot of articles about Social Security, including an endless parade of recommendations concerning the best way to maximize benefits. Just last week we posted this article about the five Social Security myths that can cost you plenty. But over the past few days we’ve seen a barrage of articles from many news sources reporting on a new study that is really attracting a lot of attention. This new study shows that millions of American retirees are losing out on tens of thousands of dollars in lifetime Social Security benefits simply because they are claiming those benefits too soon.
Taking Social Security Too Early Means Millions are Missing Out
As we said, several major news outlets picked up this story, including this article from the Considerable website, whose headline immediately grabbed our attention. “The average American loses more than $100,000 by claiming Social Security too early,” it read. This conclusion comes from a just-released study by investment managing firm United Income, based on data from 2,000 households that participated in the University of Michigan’s Health and Retirement Study. “Millions of Americans depend on their Social Security benefits for retirement,” said the article written for Considerable by Matthew Rothenberg, “but most of them are losing out by claiming them too soon.” More than 70 percent of beneficiaries claim benefits before they turn 65, locking themselves into a lifetime of lower monthly payments, instead of waiting to max out their benefits at age 70 – a goal only four percent achieve. Says Rothenberg, “Older Americans’ itchy trigger fingers are costing them an average 9 percent monthly in Social Security benefits. That’s $111,000 per household.”
Care to hazard a guess at the cumulative cost? Experts suggest American retirees are losing out on roughly $3.4 trillion in benefits they could be receiving during their lifetimes. In their 24-page report, United Income refers to a delayed Social Security claiming strategy as “The Retirement Solution Hiding in Plain Sight.” The study, which was funded in part by the Social Security Administration, claims that society at large would experience dramatic benefits if people were educated to make the right Social Security decisions. “Elderly poverty could be cut by nearly 50 percent if all retirees claimed Social Security at the financially optimal time,” says the report. Today, estimates are that roughly one of every eight seniors over 70 is expected to live in poverty at some point – but if these seniors were to claim Social Security more wisely, that incidence of poverty could be cut practically in half.
Taking Social Security Too Early is an Expensive Mistake for Most Households
The report does acknowledge that some people are better off filing early – as early as 62 for most adults. “Sometimes, circumstances compel individuals to claim Social Security before the 70 mark,” says Considerable, “and some households can benefit financially if one member – rarely the primary breadwinner – does claim early.” But the bottom line is clear that, for the vast majority of households, claiming benefits early will be an expensive error in judgment. The United Income report examined household income, life expectancy, and a host of other factors and concluded that almost 60 percent of retirees would be wealthier throughout the duration of their lives if they waited to claim Social Security benefits at age 70 – something only 4 percent of retirees currently manage to do. At the other end of the spectrum, fewer than 7 percent of retirees would end up being better off if they claimed prior to turning 64 – something that 70 percent of retirees currently do. Talk about a topsy-turvy strategy!
Study authors recommended one marketing idea that would be simple to implement. Right now, age 62 is described as the “early eligibility age.” Instead, the authors suggesting calling 62 the “minimum benefit age,” while age 70 could be called the “maximum benefit age.” Makes sense to us.
In researching this article, we also took a look at this related news report on the Bloomberg website, which said that the best way to delay Social Security until the “financially optimal time” might be to spend some of your savings if you have to. “The researchers say the best strategy requires dipping into savings in your 60s in order to guarantee a larger check later on,” says Bloomberg. “By claiming at the right time, more than half of retirees would see incomes in their 70s and 80s rise by more than 25 percent.” But the study authors admit that this idea of spending down savings in order to maximize Social Security benefits makes many retirees nervous, because they “are often reluctant to watch those [savings] balances fall.” Bloomberg also warns that “relying on financial advisers and wealth managers to tell you what to do may be a mistake – they might not have your best interests at heart.” After all, the article suggests, if the ideal claiming decision involves spending down your investment account, your financial firm might hesitate to give you that advice since it could reduce their fees and commissions.
To Avoid Taking Social Security Too Early, You Need the Right Retirement Plan
Social Security is critical for American seniors, making up half or more of the household income of half of all retirees. But developing the right strategy for claiming benefits is part of a much larger picture of retirement planning. Many people think that a good financial plan (including Social Security) is all they need for a safe and secure retirement, but they are tragically mistaken: your health, your housing choices, your legal protection and your family communication are all essential components of comprehensive retirement planning as well. Fortunately, there’s one approach to retirement planning that weaves all these together: it’s called a LifePlan, and it’s an AgingOptions exclusive.
With that in mind, we invite you to invest just a few hours and discover the power and the peace of mind that come with a well-rounded retirement plan. Join Rajiv Nagaich at a free LifePlanning Seminar. You can bring all your retirement-related questions – including questions about Social Security – and we predict you’ll come away with a greater sense of clarity than you ever thought possible. You’ll find a complete calendar of upcoming seminars on our Live Events page, where you can also sign up quickly and easily for the date and time that works for you. Start your journey on the road to a secure retirement the right way, at an AgingOptions LifePlanning Seminar with Rajiv Nagaich. Age on!
(originally reported at www.considerable.com)