90% of Americans could be making a big Social Security mistake

Here’s an alarming statistic: Only 10 percent of America’s early retirees plan to wait until age 70 to claim Social Security benefits, according to Schroders’ 2023 US Retirement Survey. That’s alarming because the longer you wait to start collecting Social Security (until age 70), the higher your benefits will be.

Sometimes it can make sense to claim your benefits early, but generally it’s better to delay. Here’s a closer look at this vital decision.

Image source: Getty Images.

The survey says…

The Schroders survey provided additional interesting details:

• 17% of those very close to retirement (those aged 60-65) plan to delay until their 70s. Maybe these people, now that they are very close to retirement, understand that they will need those bigger checks.
• Overall, 40 percent of pre-retirement survey respondents expect to claim Social Security benefits between ages 62 and 65.

This timing issue is very important. You can start collecting your benefit checks as early as age 62, but that will make your checks smaller (albeit a lot of them), or you can defer until age 70, with each year you defer beyond “full retirement age” (between 66 and 67 for most of us) increasing your benefits by about 8%.

The table below shows how much you will receive in your full benefits, depending on when you claim them:

Data source: Social Security Administration.

Why claim benefits so early?

So why are so many people planning to collect early? Here’s what Schroders found:

• 44% worried that Social Security might run out of money or stop making payments.
• 36% expect to need money.
• 34% said they just wanted the money as soon as possible because it was theirs.
• 13% reported being advised to take it earlier than age 70.

It’s not crazy to worry about the health of Social Security, but don’t think the program will run out of money or stop paying anytime soon. After all, as long as people work and are taxed for Social Security, money will flow into the program. The problem is that in a decade or so, the money coming in won’t fully cover the obligations.

The latest report from the combined Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust fund finds that it can pay 100% of Social Security obligations by 2035. At that time, the funds received will be able to only cover 83% of expected payments due to beneficiaries. (So ​​if nothing is done, future retirees may only receive 83% of what they are entitled to.)

It’s also fair to claim your benefits early if you simply need the money. This is true for many people.

The best strategy for most of us

But if you maybe Delaying starting to collect benefits is probably the best move. This was made clear in a 2019 report from the folks at United Income, based on when 20,000 people claimed their benefits. The report found that:

Some 57% of retirees would build more wealth over their lifetime if they waited to claim until age 70 (when only 4% of retirees currently claim), while only 6.5% of retirees would he had more wealth if he claimed before he taught. 64 (when over 70% of retirees are currently claiming benefits).

So for most people, deferring until age 70 is the most effective move if you want to maximize the dollar amount you get out of the program. (There are other ways to increase your Social Security benefits.)

If you’re about to fall behind, consider this: The average monthly Social Security retirement benefit was $1,919 in July, worth about $23,000 annually. It’s true that you’ll get more if your earnings were above average, but the maximum monthly benefit is still only $4,873 for 2024 — about $58,500 a year.)

So think about the critical decision of when to start cashing your Social Security benefit checks because it can make a big difference. Make sure Social Security considerations are an important part of your overall retirement plan.