90% of Americans Plan to Skip Social Security’s No. 1 Tip, Study Finds

Nine in 10 American workers say they consider ignoring one of the most common financial tips about Social Security: waiting until age 70 to claim benefits, which guarantees higher monthly payments, according to a new study from investment firm Schroders.

Social Security allows employees to claim their benefits as soon as they turn 62, years before what’s known as “full retirement age,” which now stands at 67. But applying for Social Security early has a tradeoff: It reduces your monthly payment by about 30 percent, with those lower benefits locked in for the rest of your life.

In contrast, delaying Social Security until age 70 results in a monthly payment about 24% higher than if you applied for benefits at age 67 – also locked in as long as you receive benefits. As a result, financial experts often recommend that seniors wait as long as they can, with one study finding that applying for benefits early can costs $182,000 in missed payments.

The Schroders survey suggests that many Americans who have not yet retired do not adhere to this advice. In the survey of 1,500 adults, most respondents said they understand the downside of filing for benefits early, but only 10% plan to wait until age 70, while 44% plan to apply for benefits before reaching full retirement age.

Social Security offers an online calculator that allows users to enter their date of birth and then calculate the percentage difference in their monthly payment based on the age at which they plan to apply for retirement benefits.

Another new study, released Tuesday by the Allianz Center for the Future of Retirement, finds that a majority of Americans say they don’t know much about Social Security or how it will fit into their retirement plan. And about one in five people believe Social Security will provide all the retirement income they need, even though it typically replaces only 40% of a worker’s salary when they retire, the study found.

“Not an oversight”

This disconnect illustrates the financial reality most workers face, Deb Boyden, head of U.S. defined contribution at Schroders, told CBS News.

“The decision to sacrifice additional Social Security income is not an oversight on the part of most Americans,” she said. “According to our research, 70% of Americans are aware that waiting longer to receive Social Security results in higher payments, and yet so few are willing to wait.”

Many retirees face a shortfall in their own retirement savings, a financial shortfall well documented by a growing share of Americans. live paycheck. Many workers “need the income generated by Social Security to meet their expenses immediately after retirement,” Boyden noted.

Why many older people benefit from Social Security early

While the advice to wait as long as possible to receive Social Security makes financial sense, it also does not fully take into account people’s individual needs and circumstances. Many older adults claim benefits earlier for financial reasons, while others may do so because health problems or chronic illnesses lead them to expect a shorter-than-average life expectancy.

Some seniors also evaluate what’s called the break-even point — the age at which the total money you collected by starting benefits early equals what you would have collected if you had delayed applying for Social Security in order to get a larger monthly check. In other words, someone who starts collecting benefits at age 62 will have accrued eight years of benefits, instead of claiming them at age 70.

Based on the current average monthly Social Security benefit of $2,000, this early applicant would receive a reduced benefit of approximately $1,400 per month. Over the next eight years, that would amount to a total of $134,400 in benefits received by the time the person began collecting Social Security at age 70.

By claiming benefits at age 70, that person would receive a monthly payment of $2,480, but it would take 10.4 years for the additional amount in their monthly payment to exceed the $134,400 an early filer collected over the previous eight years. This brings the equilibrium age to approximately 80.4 years.

The result: Some older people, especially those with health problems, might decide that they are unlikely to reach that break-even age and choose to have money in their pockets sooner rather than waiting to start collecting Social Security.

The average life expectancy for a 62-year-old man today is an additional 22 years, or about 83.6 years, while a woman of the same age is expected to live to about 86.5 years, according to the Social Security Administration.

Concerns about the future of Social Security

There’s another reason why many Americans consider claiming their Social Security benefits before reaching full retirement age, she added. That’s due to concerns about the future of Social Security, which are fueling worries that “the money might not be there if they wait,” Boyden said.

Social security is in fact facing a financial crisiswith an aging U.S. population that means its payments now exceed workers’ contributions. Without changes to the program, this will result in its trust funds become insolvent by 2034, according to the latest calculation by the Social Security Foundation Board.

Yet many mistakenly believe that this means Social Security will cease payments if the trust funds become insolvent. Payments would continue in such a case, but benefits would be reduced by about 20%, which could be a major financial hit for the program’s more than 70 million beneficiaries.

Still, there are ways lawmakers can strengthen the program, such as raising the Social Security tax revenue cap, which stands at $176,100, experts say. Income above this amount is exempt from the payroll tax, which funds social security.

Meanwhile, non-retired Americans told Schroders they estimate they need $5,032 in monthly income to retire comfortably. But today’s retirees average about $3,250 in monthly retirement income, Boyden said, adding that the gap speaks to the need to help workers better plan for retirement.

A recent Goldman Sachs analysis found that three-quarters of young American workers say they are hard to save in retirement because basic expenses like housing absorb a larger share of their income compared to previous generations.