Only 10 percent of Americans will wait until age 70 to claim Social Security because they fear the government will refuse the benefit.
According to a new study by investment giant Schroder, 40 per cent of people plan to start claiming pension benefits between the ages of 62 and 65 – and will not yet be entitled to a full pension.
Americans can start receiving Social Security benefits as early as age 62, but doing so will result in a lifetime reduction in payments. On the other hand, if you wait until the age of 70, you are guaranteed to receive the maximum monthly pension.
The decision not to make larger payments is a conscious decision, the study says: 44 percent of people said they were worried that Social Security would run out of money or be unable to make more payments. Around 36 percent said they would need the money when they reached retirement age.
While many experts argue that retirees should wait as long as possible to start paying Social Security, others believe it is wise to maximize payments as soon as possible to increase your chances of a cost-effective pension.
According to a new study, only 10 percent of Americans would wait until age 70 to claim Social Security
“We have a crisis of confidence in the Social Security system and it’s costing American workers real money,” said Deb Boyden, Schroders’ head of US defined contributions.
“Fearing the stability of Social Security, people are giving up money that could improve their quality of life in retirement.”
“Many don’t even wait for full retirement, let alone the maximum, which means they have to generate more income themselves. This makes it all the more important to save and invest earlier for retirement.”
According to the Social Security Administration, the average benefit as of December last year was $1,825 per month.
However, the reduction you get if you take your Social Security contributions early depends on your full retirement age, which in turn varies depending on the year you were born.
For example, people 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. People born in 1960 or later have a retirement age of 67.
So if someone whose full retirement age is 67 retires at 62, they will receive only 70 percent of the benefit to which they are entitled.
However, if they wait until age 70, they can receive 124 percent of their pension — thanks to a credit created by Congress in 1972.
The reduction you get if you take your Social Security contributions early depends on your full retirement age, which in turn varies depending on the year you were born
However, some experts claim that reaping the benefits early also has benefits.
Joseph Fishman, senior financial planner at Benefit Wealth Partners, told Kiplinger that Americans should be clear about trying to breakeven on their welfare payments.
Once money is deposited into the Social Security system in the form of payroll taxes, it is no longer “your money” but “everyone’s money,” he explained.
“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’re trying to break even on Social Security
“Basically, if you use it early, you get a lower service for a longer period of time and if you use it later, you get a larger service for a shorter period of time.”
While it’s obviously difficult to predict how long you’re going to live, Fishman said, “In short, the argument for early claiming is getting out of Social Security what you put in.”
Another reason for filing his claims early, he told the outlet, may be that spending the government’s money is better than spending your own.
“If you retire at age 62 and need income to pay bills without being eligible for Social Security, you need to get that money from your retirement savings.”
“Each year you wait to claim, you’ll then be spending your savings more quickly than spending money from your state Social Security benefits.”
The final reason why taking payments early can make sense, Fishman says, is the confidence a retiree can gain by finding an additional income stream right away.
“Let’s face it, there’s no way of knowing how long you’re going to stay healthy in retirement,” he added.
“Many early retirees have to be careful with their spending. That’s why it makes sense to maximize take-home income early in retirement so you can cross as many things off your wish list as possible in the early years of retirement.”