Claiming SS: Why Most Dont Wait Til 70
Navigating the world of retirement planning can feel like a complex puzzle, and perhaps no piece is more perplexing than deciding when to claim your Social Security benefits. We all know the general wisdom: the longer you wait, the bigger your check. But does that mean everyone should wait until age 70? Or are there compelling reasons why most retirees choose to claim their benefits much earlier?
Today, we're diving deep into this fascinating dilemma, exploring why the majority of people don't delay Social Security until age 70, even when they know it could mean more money in their pockets. Let's uncover the truths and debunk some myths together!
When it comes to Social Security, you have a pretty wide window to choose from: you can start claiming benefits as early as age 62 or as late as age 70. This eight-year span is crucial because your decision significantly impacts the size of your monthly check.
The Social Security Administration sets a baseline called your Full Retirement Age (FRA). For anyone born in 1960 or later, your FRA is 67. This is the age at which you're eligible to receive 100% of your primary insurance amount – the benefit calculated based on your earnings history.
Here’s the catch:
- Claiming Before FRA (e.g., at 62): Your benefits are permanently reduced. If your FRA is 67, claiming at 62 means your benefits will be slashed by a whopping 30%! Imagine losing almost a third of your potential income just by starting a few years early.
- Delaying After FRA (e.g., until 70): For every month you wait past your FRA, your benefits increase. This "delayed retirement credit" can boost your monthly payment by up to 8% per year, maxing out at age 70. For someone with an FRA of 67, waiting until 70 could mean a 24% increase in benefits!
The financial incentive to wait is clear. So, why do so many people still jump the gun? Let's find out!
Despite the undeniable financial benefits of waiting, a recent study by Schroders revealed some eye-opening statistics:
- 44% of non-retirees plan to claim Social Security before age 67.
- Only 10% plan to wait until age 70.
What's even more surprising is that 70% of respondents in the study understood that delaying benefits would lead to bigger Social Security checks. So, it's not a lack of knowledge driving these decisions. Instead, it's a mix of very human, practical reasons.
Here are the top four reasons survey respondents gave for their early claiming plans:
- Accessing Money ASAP (37%): Sometimes, immediate liquidity is paramount. Perhaps you're ready to retire earlier than expected, or you have a pressing need for funds to cover a down payment, home repairs, or simply to enjoy your newfound freedom sooner. Think of Sarah, who retired early due to burnout and needed those initial Social Security checks to bridge the gap until her other investments matured.
- Concern About Solvency (36%): Many worry that Social Security might run out of money or stop making payments entirely. This fear, while understandable, often stems from misinformation (more on this in Topic 3!).
- Need for Regular Income (34%): For many, Social Security isn't a bonus; it's a vital part of their monthly income. If other retirement savings are insufficient, or if unexpected expenses arise, claiming early can be a necessity to maintain a stable lifestyle. Consider John, who faced unforeseen medical bills that depleted a portion of his savings, making early Social Security a crucial income stream.
- Advisor Recommendation (15%): Sometimes, financial advisors might suggest an earlier claim based on a holistic view of an individual's financial situation, health, and family circumstances.
The concern that Social Security might disappear is a powerful motivator for claiming benefits early. However, it's a fear based on a misunderstanding of how the program works.
Let's clarify:
- The Trust Funds: The primary financial concern for Social Security currently revolves around its trust funds, which act like rainy-day savings. Projections indicate these funds might run dry around 2034.
- Not a Total Collapse: If the trust funds are depleted, it doesn't mean Social Security stops making payments. Instead, annual Social Security payroll taxes would still be able to fund about 81% of scheduled benefits.
- Political Will: While a 19% reduction would certainly be a significant impact, the outright collapse of Social Security is highly unlikely. Tens of millions of Americans rely on these benefits for their primary or supplementary income. Allowing such a major cut would be politically disastrous, making it almost certain that Congress will eventually find a solution – even if it's a last-minute one. Think of it like a highly popular government program that needs a budget adjustment, not a complete shutdown.
So, while vigilance is good, panic is generally unwarranted. The program is designed to be resilient, and its importance to American retirees ensures its continued existence, albeit perhaps with some adjustments.
Let's test your understanding of Social Security claiming!
Q1. What is the earliest age you can claim Social Security benefits?
A. You can start claiming Social Security benefits as early as age 62.
Q2. How much can your benefits be reduced if you claim at age 62 compared to your Full Retirement Age (FRA)?
A. If your Full Retirement Age (FRA) is 67, claiming at age 62 can lead to a reduction in benefits of as much as 30%.
Q3. What are some common reasons retirees claim Social Security benefits before age 70, even if they know they'll get less?
A. Common reasons include wanting to access money as soon as possible, concerns that Social Security may run out, needing the money for regular income, or being advised to take it earlier.
Q4. Is Social Security expected to completely run out of money?
A. No, Social Security is not expected to completely run out of money. While the trust funds may face depletion around 2034, annual payroll taxes would still be able to fund about 81% of scheduled benefits, and a complete collapse is highly unlikely due to political and social factors.
Ultimately, there's no universal "right" answer when it comes to claiming Social Security. While financial experts often advocate for delaying until 70 to maximize lifetime benefits, the best decision is deeply personal and depends entirely on your unique circumstances.
If you're healthy, have ample retirement savings, and other income sources to cover your daily expenses, then delaying until age 70 might be your optimal strategy for a significantly larger monthly check.
However, if you're facing health challenges, struggling with monthly bills, or need the income to cover unexpected healthcare costs, claiming benefits earlier might be the most sensible and necessary choice for your financial well-being.
The key takeaway is to understand how timing impacts your benefits. By arming yourself with this knowledge, you'll be in the best position to make an informed, optimal decision that aligns with your personal situation and retirement goals. Don't let generalized advice dictate your path; educate yourself and choose wisely!