Many Americans are under the misconception that Social Security benefits will disappear once the trust funds are depleted. However, according to Emerson Sprick of the Bipartisan Policy Center, even if the trust funds run out, the program will still have revenue from payroll taxes. Benefits may be reduced, but they will not completely disappear. Despite this fact, a concerning 75% of adults ages 50 and older believe that Social Security will run out in their lifetime, as revealed by a 2023 Nationwide Retirement Institute survey.
Data shows that many retirees do not wait until they are eligible to receive 100% of the benefits they’ve earned. The most popular age to claim benefits is 62, with 29% of beneficiaries claiming at the earliest possible age in 2022. However, claiming benefits at 62 results in approximately a 30% reduction in benefits compared to waiting until full retirement age, which is typically between 66 and 67. In 2022, 62% of beneficiaries claimed before reaching full retirement age, while only 16% claimed benefits at their full retirement age. For every year beneficiaries delay claiming benefits past full retirement age up to age 70, they stand to receive an 8% increase in benefits. Despite this potential increase, only 10% of claimants waited until age 70 to claim benefits.
The top reason people claim benefits early is a fear that Social Security will run out of funds and stop making payments, as revealed by a 2023 Schroders survey. The second most common reason cited was a need for immediate financial support. Psychological factors may also play a role in early claiming habits, with some individuals feeling a sense of ownership over the benefits they’ve earned and a desire to claim them as soon as possible. Others may be motivated by an aversion to losing money.
Despite the reasons for early claiming, experts generally agree that it is financially advantageous to delay claiming Social Security benefits. Teresa Ghilarducci, a professor at The New School for Social Research, emphasizes the penalty for collecting benefits before age 70. For example, claiming benefits at age 62 instead of waiting until the full retirement age could result in a significant reduction in monthly payments. Waiting until age 70, on the other hand, could lead to a much higher monthly benefit amount.
Retirement experts stress the value of delaying Social Security benefits, as they are adjusted annually for inflation, providing a level of financial security unmatched by other retirement options. Even small delays of six months, 12 months, or 18 months can have a positive impact on retirement security. Viewing delays in terms of months rather than years can help individuals who may not be able to wait for an extended period before claiming benefits.
While there may be fears and misconceptions surrounding the future of Social Security benefits, it is crucial for individuals to understand the potential financial benefits of delaying their claims. By taking the time to carefully consider their options and seek advice from experts, retirees can make informed decisions that will have a positive impact on their financial security in retirement.