Only 10 percent of Americans will wait until they turn 70 to start claiming Social Security payments amid fears the Government will row back on the benefit.
According to a new study by investment giant Schroders, 40 percent of people plan to start taking the benefits between the ages of 62 and 65 – leaving them short of 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 70, meanwhile, will guarantee an individual receives their maximum monthly benefit.
The choice to forgo larger payments is a deliberate one, the study found, with 44 percent of people saying they were concerned Social Security may run out of money or stop making payments. Some 36 percent said it was because they will need the money when they reach the age threshold.
While many experts claim retirees should hold off as long as possible to start drawing Social Security, others say it is wise to maximize the payments as soon as possible to increase your chances of breaking even on your benefit.
‘We have a crisis of confidence in the Social Security system and it’s costing American workers real money,’ said Deb Boyden, Head of US Defined Contribution at Schroders.
‘Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement.
‘Many are not even waiting for their full benefit, 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 for retirement.’
According to the Social Security Administration, the average benefit, as of December last year, was $1,825 a month.
But the reduction you will receive if you claim early on your Social Security payments depends on your full retirement age, which in turn, varies depending on your birth year.
For example, those born in 1937 and earlier 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.
So, if somebody whose full retirement age is 67 retired at 62 they would only receive 70 percent of the benefit they are entitled to.
If they delay until they are 70 years old, however, they can receive 124 percent of their benefit – thanks to a credit created by Congress in 1972.
However some experts claim that taking the benefit early also has its positives.
Joseph Fishman, senior financial planner at Benefit Wealth Partners, told Kiplinger how Americans should be aware of trying to break even on their benefit.
Once money has been contributed in the form of payroll taxes into the Social Security system, he explained, it is no longer ‘your money,’ – rather it is ‘everybody’s money.’
‘That means if you pass away early, you can’t take it with you, and your family can’t inherit it,’ he said.
‘Essentially, when claiming early, a smaller benefit is collected for a longer period of time, and when claiming later, a larger benefit is collected for a shorter period of time.’
While of course it is difficult to predict how long you will live, Fishman said, ‘in short, the argument to claim early is to get out of Social Security what you put in.’
Another reason for claiming early, he told the outlet, may be that it is better to spend the Government’s money rather than your own.
‘If you retire at age 62 and need income to pay bills, without claiming Social Security, you’ll have to draw that money from your retirement savings.
‘Every year that you wait to claim, you will then be spending down your savings at an accelerated rate, rather than spending money from your government Social Security benefits.’
The final reason it can make sense to draw the payments early, Fishman said, is the confidence a retiree can gain by gaining an extra source of income off the bat.
‘Let’s be honest, there is no way to know how long you will be healthy in retirement,’ he added.
‘Many pre-retirees need to spend carefully. That’s why it makes sense to maximize the take-home income early in retirement so you can check as many items off of that bucket list as possible in the early years of retirement.’
