The decision to draw on benefits early came even as 72% said they knew that waiting would mean a higher payment, according to the Schroders’ 2023 U.S. Retirement Survey. Yet, only 10% of Americans plan to wait until 70 to claim Social Security benefits, and 40% plan to take it between the ages of 62 and 65 – short of qualifying for full benefits.
The Schroders survey said that 44% of respondents planned to draw on their benefits early over concern that Social Security is running out of money. Social Security recipients could see their benefits cut by 20% as soon as 2034 unless Congress takes action, according to the annual trustees’ report recently released by the Treasury.
“We have a crisis of confidence in the Social Security system, and it’s costing American workers real money,” Deb Boyden, Schroders head of U.S. defined contribution, said. “Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement.”
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Waiting until 70 yields a higher income
The upfront benefit of claiming retirement benefits at age 70 is a higher payment, according to retirement planning experts.
“For each year an individual defers beyond their full retirement age, until age 70, they will generally accrue a permanently increased benefit amount of 8%,” Joseph Doerrer, Mezzasalma Advisors vice president of wealth planning, said. “For an individual with a full retirement age of 67, deferring to age 70 means a permanent benefit increase of 24% above their full retirement age amount.”
For married couples, deferral until age would increase the possible survivor benefit for a surviving spouse, ensuring they will receive the maximum Social Security benefits during the difficult period when a spouse passes, Doerrer explained.
In terms of how much money that translates into, retirees are leaving up to $111,000 per household behind by claiming Social Security at the suboptimal time, according to David Rosenstrock, a director at Wharton Wealth Planning.
“Delaying your filing will clearly leave you with more money on a monthly basis, but you need to consider whether it will mean getting the most money on a lifetime basis,” Rosenstrock said. “If you need the income sooner rather than later for personal circumstances or if you don’t expect to live very long because of health issues or your personal family health background, then it could make more financial sense for you to claim benefits at full retirement age or even sooner to receive the highest lifetime payout.”
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