There is a straightforward approach to boosting your retirement security rapidly, but far too few seniors are taking advantage of it. According to a recent study paper, nearly all Americans should wait beyond age 65 to collect their full Social Security payments, and more than 90% should wait until age 70 to get even more. However, just 10% wait until age 70 to collect Social Security.
The recommendation comes when Americans are living longer, facing a retirement that might last longer than anticipated, and encountering unforeseen situations that could make delaying retirement more difficult, even if it means more money.
The United States faces a retirement catastrophe. There are far too many Baby Boomers retiring too early with too little money, said Laurence Kotlikoff, an economics professor at Boston University and one of the report’s authors, in an interview with Yahoo Money. They can mitigate, if not eradicate, this issue, and they must make Social Security collecting decisions that maximize their lifetime benefits – something nearly no one does.
How waiting may be useful
Your retirement may last far longer than you anticipate. The Society of Actuaries estimates that a 65-year-old man in typical health has a 54% chance of surviving to age 85. (SOA). A 65-year-old woman has a 65% chance of living to be 85 years old. And one in three men aged 65 who are in ordinary health has a possibility of reaching the age of 90. Nearly half of 65-year-old women in ordinary health will likely live to be 90.
Therefore, your retirement funds must endure a long period, and Social Security can help.
Suppose you are 62 years old in 2024, your full retirement age is 67, and your monthly benefit at full retirement age is $1,000. The Social Security Administration cuts your monthly income by 30% to $600 if you begin receiving benefits at age 62 to account for the extended period you would receive benefits. Typically, this decline is permanent.
If you choose to wait to receive benefits until age 70, you will get delayed retirement credits, equal to an 8% yearly increase between your full retirement age and 70, when the credits will cease to accrue. That would result in a monthly benefits rise to $1,240.
In this case, the monthly benefit at age 70 is almost 77% more than the monthly benefit received at age 62, a difference of $540 per month.
According to the Employment Benefit Research Institute’s (EBRI) 2024 Retirement Confidence Survey, nearly two-thirds of retirees rely heavily on Social Security. This is a significant amount, especially considering that for almost two-thirds of retirees, Social Security is a major source of income.
David Blanchett, the head of retirement research at PGIM DC Solutions, quoted Yahoo Finance saying that benefits are tied to the Consumer Price Index when waiting until age 70. As well as mitigating inflation risk, it also mitigates longevity risk.
In 2024, for example, Social Security payments will increase by 8.7% as part of the yearly cost-of-living adjustment (COLA). Blanchett stated that today’s inflation, in particular, is causing those not previously interested in deferring their Social Security benefits to contemplate doing so. It allows them to hedge against future inflationary spikes.
Why individuals aren’t waiting
Many older Americans are prevented from delaying Social Security due to life events such as job loss and health problems. Economic conditions such as a falling stock market and fears of a recession can encourage some to claim benefits before their accounts have depreciated.
“Most individuals claim benefits when they need them,” said Linda Benesch, director of communications at Social Security Works, in an interview with Yahoo Finance. The most typical age for claiming benefits is 62 because many individuals cannot afford to wait, especially if they’ve been pushed out of the workforce or forced to accept lower-paying positions owing to age discrimination or incapacity to do physically demanding labor.
It is estimated that about half of Americans receive Social Security benefits before reaching their full retirement age (FRA), which ranges from 66 to 67, according to Martha Shedden, president of the National Association of Registered Social Security Analysts (NARSSA), which trains advisors to assist clients in making optimal decisions about Social Security.
She claimed that a quarter of males and slightly under a third of women collect Social Security as soon as they become eligible at age 62, accounting for half of those who claim benefits before their FRA.
There are several reasons why people don’t wait, including misconceptions, myths, and lies about the Social Security program. This might lead to a sense of missing out if they don’t claim quickly. Shedden stated we have the greatest COLA adjustment in four decades, and some individuals may believe that they will not benefit from this increase if they are not collecting. It is not true.
Even if you haven’t filed for Social Security, the annual Social Security COLA is added to your benefit amount.
Three measures to assist you in delaying your benefit
One approach to delay is to remain employed as long as possible.
If you defer retirement for a little while, say six months, a year, or a year and a half, your retirement account will grow because you contribute to it.
You may also utilize other investments or retirement accounts as a stopgap measure. Or seek ways to make income by decreasing your residence. You may relocate to an area with a lower cost of living.
“We do not educate people nearly enough on this issue of running out of money in retirement,” said Chatzky. “We’ve discussed the necessity to save money for retirement for years. However, running out of money demands a strategy, given that retirement might last 30 or 40 years.”
Two online tools might assist you in performing calculations. The calculator provided by the Social Security Administration compares retirement benefit estimates based on your selected date or age to begin receiving benefits with retirement benefit estimates for ages 62, Full Retirement Age (FRA), and 70. The AARP’s Social Security Calculator walks you through the calculations of when to apply and how much you’ll get.
According to Kotlikoff, one of the greatest obstacles that motivate seniors to claim Social Security benefits as soon as they’re eligible is their reluctance to deplete other savings accounts first, notably their 401(k) plans and other retirement funds.
They believe they will one day make a fortune on the market, he remarked. This is essentially the result of Wall Street persuading them to leave it in place because the payoff would come. It could. However, you cannot rely on the Social Security payments you get for the remainder of your life, even if you have patience and plan.