Only 10% of Americans will wait until they are 70 to start claiming Social Security benefits, fearing the government will roll back benefits.
According to a new study by the investment giant Schröders40% of people expect to start receiving benefits between the ages of 62 and 65, which prevents them from qualifying for their full retirement benefits.
Americans can start claiming Social Security benefits as early as age 62, but this will result in a lifetime reduction in payments. Waiting until age 70, meanwhile, will ensure that an individual receives their maximum monthly benefit.
The choice to forego larger payments is deliberate, the study found, with 44% of people saying they were worried Social Security might run out of money or stop making payments. Some 36% said it was because they will need the money when they reach the age threshold.
While many experts say retirees should wait as long as possible to start collecting Social Security, others say it’s wise to maximize payments as soon as possible to increase your chances of breaking even. .
According to a new study, only 10% of Americans will wait until they are 70 to start claiming Social Security benefits.
“We have a crisis of confidence in the Social Security system and it’s costing American workers real money,” said Deb Boyden, U.S. defined contribution manager at Schroders.
“Fear of Social Security stability drives people to forgo money that could improve their quality of life in retirement.
“Many are not even expecting their full benefits, let alone the maximum, which means they will have to create more income on their own, making it even more important to save and invest earlier to retirement.”
According to the Social Security Administration, the average benefit as of December last year was $1,825 per month.
But the reduction you will receive if you request your Social Security payments early depends on your full retirement age, which in turn varies depending on your year of birth.
For example, people born in 1937 and before have a retirement age of 65, while those born between 1943 and 1954 have a full retirement age of 66. Those born in 1960 or later have a retirement age of 67.
Thus, if someone whose full retirement age is 67 retired at 62, they would only receive 70% of the benefits to which they are entitled.
If they delay until age 70, however, they can receive 124% of their benefit – through an appropriation created by Congress in 1972.
The reduction you will receive if you request your Social Security payments early depends on your full retirement age, which in turn varies depending on your year of birth.
However, some experts say taking the benefits early also has its benefits.
Joseph Fishman, senior financial planner at Benefit Wealth Partners, said Kiplinger how Americans should be aware of trying to break even on their benefits.
Once the money has been paid as payroll taxes to the Social Security system, he explained, it is no longer “your money”, but rather “everybody’s money”.
“That means if you die prematurely, you can’t take it with you and your family can’t inherit it,” he said.
Joseph Fishman, senior financial planner at Benefit Wealth Partners, said Americans should be mindful of trying to break even on Social Security
“Essentially, when applying early, a smaller benefit is collected for a longer period, and when applying later, a larger benefit is collected for a shorter period.”
While it’s of course hard to predict how long you’ll live, Fishman said, “in short, the argument for claiming early is getting out of Social Security what you put in.”
Another reason to claim early, he told the outlet, may be that the government’s money is better spent than your own.
“If you retire at 62 and need income to pay your bills, without claiming Social Security, you will have to take that money out of your retirement savings.
“Each year you wait to claim, you will then be spending your savings at an accelerated rate, rather than spending your government Social Security benefit money.”
The final reason it may make sense to take payments early, Fishman said, is the confidence a retiree can gain by having an additional source of income upfront.
“Let’s be honest, there’s no way of knowing how long you’ll be healthy in retirement,” he added.
“Many pre-retirees need to spend with caution. That’s why it makes sense to maximize net income early in retirement so you can check off as many items as possible off that to-do list in the early years of retirement.