The Hidden Fear Behind Social Security: Are You Making This Costly Error?

Succumbing to fears concerning Social Security could lead to financial consequences. From a statistical perspective, the optimal age to receive Social Security benefits is 70. Nonetheless, many individuals appear to disregard these statistics. Around 40% of Americans intend to claim their Social Security benefits by age 65.

Schroders, an asset management company, sponsored an annual U.S. retirement survey conducted by 8 Acre Perspective earlier this year. The survey involved 2,000 investors aged 27 to 79 from across the country. One notable finding is that 40% of individuals who have not yet retired plan to claim Social Security benefits when they reach ages 62 to 65. This decision is not due to a lack of understanding about the higher benefits they could receive by waiting until their full retirement age.

The survey revealed that 72% of Americans fully know that waiting could result in a higher monthly benefit, but they consciously choose to forego it. The underlying cause of their decision is straightforward: fear. Forty-four percent of respondents who haven’t retired express concerns that Social Security funds might deplete. Are these fears substantiated?

A prevailing mindset for many Americans regarding Social Security is to “use it before you lose it.” If the federal program is facing financial strain, securing as much of the benefits owed as quickly as possible makes logical sense. However, these apprehensions about Social Security are not entirely warranted.

Many people seem unclear about the implications of the financial challenges confronting the Social Security program. The Old-Age and Survivors Insurance (OASI) Trust Fund of the Social Security program is projected to be depleted by 2032, as per the Congressional Budget Office (CBO). If the funds from the Disability Insurance Trust Fund are combined with the OASI fund, full Social Security benefits could be sustained through 2033. Nevertheless, the depletion of these trust funds within the next decade doesn’t imply a complete halt to Social Security benefits.

The program’s primary funding comes from payroll taxes, which will continue after the trust funds are exhausted. The CBO’s projections suggest that if no reforms are implemented, Social Security benefits might be reduced by 25% starting in 2034. While this scenario is far from ideal, it’s significantly better than the complete eradication of benefits, as many Americans seem to fear.

In reality, an early collection of Social Security benefits could have a more substantial negative financial impact than the depletion of the program’s trust funds. If benefits are claimed at 62, the amount received will be 30% lower than waiting until the full retirement age of 67.

Moreover, it’s premature to dismiss the possibility of Congress enacting changes safeguarding Social Security benefits. Legislation that could greatly enhance the program’s financial stability has already been introduced. Admittedly, the chances of passing a comprehensive Social Security reform bill amidst the upcoming national elections are limited. However, lawmakers from both major political parties acknowledge the necessity for action.

Holding off on applying for Social Security benefits until reaching the age of 67 (or preferably 70) constitutes a prudent financial decision for most Americans. Similarly, while waiting for Congressional action can be frustrating, the ultimate payoff is likely worth it. Patience yields rewards.