Only 10 percent of Americans will wait until they turn 70 to claim Social Security benefits, fearing the government will cut benefits.
This is according to a new study by investment giant Schroeders40 percent of people plan to start taking benefits between the ages of 62 and 65, making them ineligible for their full retirement benefits.
Americans can claim Social Security benefits as early as age 62, but this will result in a lifetime reduction in payments. Waiting until age 70 guarantees that a person will receive their maximum monthly benefit.
The choice to forego larger payments is a conscious one, the study found, with 44 percent of people saying they were concerned that Social Security would run out of money or stop paying. About 36 percent said it was because they will need the money when they reach the age threshold.
While many experts argue that retirees should wait as long as possible to take Social Security, others say it’s wise to maximize payments as soon as possible to increase your chances of breaking even on your benefits.
Only 10 percent of Americans wait until they turn 70 to claim Social Security payments, a new study finds
“We have a crisis of confidence in the Social Security system and it is costing American workers real money,” said Deb Boyden, head of US Defined Contribution at Schroders.
Fear of social security stability causes people to run away from money that could improve their quality of life in retirement.
“Many don’t even wait for their full benefit, let alone the maximum, which will force them to create more income themselves, making it even more important to save and invest for retirement earlier.”
As of last December, the average benefit was $1,825 per month, according to the Social Security Administration.
But the discount you receive if you file for your Social Security payments early depends on your full retirement age, which in turn varies depending on your year of birth.
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 someone whose full retirement age is 67 retires at age 62, they will receive only 70 percent of the benefits they are entitled to.
However, if they delay until they are 70 years old, they can get 124 percent of their benefit – thanks to an appropriation created by Congress in 1972.
The discount you receive if you file for your Social Security payments early depends on your full retirement age, which in turn varies depending on your year of birth
However, some experts argue that getting the benefit early also has upsides.
Joseph Fishman, senior financial planner at Benefit Wealth Partners, shared Kiplinger how Americans should be aware that they are trying to break even on their advantage.
Once money is deposited into the Social Security system in the form of payroll taxes, he explained, it is no longer “your money” but is “everyone’s money.”
“That means if you die early, 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 aware that they are trying to break even on Social Security.
‘In short, if you claim early, a smaller payment will be collected for a longer period of time, and if you claim later, a larger payment will be collected for a shorter period of time.’
While it’s obviously hard to predict how long you’ll live, Fishman said, “in short, the argument for claiming early is to get out of Social Security what you put into it.”
Another reason for claiming early, he told the outlet, could be that it is better to spend the government’s money rather than one’s own money.
“If you retire at age 62 and need income to pay bills, without claiming Social Security, you need to pull that money out of your retirement savings.
“Every year you wait to claim, you’re spending your savings at an accelerated rate, rather than spending money from your government Social Security benefits.”
The final reason it might make sense to take payments early, Fishman said, is the confidence a retiree can gain by immediately acquiring an additional source of income.
“Let’s face it, there’s no way of knowing how long you’ll be healthy once you retire,” he added.
‘Many pre-pensioners have to spend carefully. That is why it makes sense to maximize net income early in retirement, so that you can cross as many things off that bucket list as possible in the first years of retirement.’