Research suggests it’s best to hold off on claiming Social Security retirement benefits until age 70, if possible, to get the biggest monthly payments available to you.
However, just 10% of nonretired Americans plan to wait until that age to start their monthly benefit checks, a new survey from asset management company Schroders finds. That includes 17% of respondents ages 60 to 65, who may be on the brink of retirement, according to the results.
Meanwhile, 40% of respondents said they plan to take their Social Security retirement benefits between ages 62 and 65, according to the survey of 2,000 investors ages 27 to 79 taken between February and March.
Yet, most investors — 72% of all nonretired investors and 95% of nonretired investors ages 60 to 65 — said they know waiting longer could result in bigger monthly checks.
The top reason for claiming early, cited by 44% of respondents, is the concern that Social Security may run out of money and stop making payments, pointing to a “crisis of confidence” in the system, according to Deb Boyden, head of U.S. defined contribution at Schroders.
Other reasons included needing the money, with 36%; wanting to access the money as soon as possible, 34%; and acting on advice to claim earlier than 70, with 13%.
Why it pays to wait to claim Social Security benefits
Early claiming will affect the size of your monthly Social Security checks.
Those who turn 62 this year will have their benefit reduced about 30% for claiming now compared with waiting until their full retirement age of 67, according to the Social Security Administration.
At full retirement age, workers stand to receive 100% of the benefits they earned.
For each year delayed past full retirement age to age 70, 8% is added to Social Security benefits.
By waiting up to age 70, retirees can lock in the biggest benefit checks available based on their work records.
Retirement benefits taken at age 70 are 76% higher, adjusted for inflation, than retirement benefits taken at 62, according to research from Boston University economics professor Larry Kotlikoff, Federal Reserve Bank of Atlanta executive vice president David Altig and Opendoor Technologies research scientist Victor Yifan Ye.
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Like Schroders, the researchers found only about 10% of workers actually wait until age 70 to claim Social Security benefits, though more than 90% would benefit from waiting until that age.
“The return on being patient is huge with Social Security,” Kotlikoff said.
While high earners may leave the most money on the table by claiming early, people with limited assets also face high stakes because of how dependent they are on the money, he said.
In some cases, it may make sense to claim early, such as if a health condition may shorten your life span. Yet, even for some people with those circumstances, delaying benefits may still make sense to trigger higher benefits for a spouse, according to Kotlikoff.
Nearly $5K per month for a comfortable retirement
When it comes to retirement, there is one big question savers face: How much money is enough?
Americans expect to need $1.27 million to retire comfortably, according to recent research from Northwestern Mutual. When it comes to monthly income needed to enjoy a comfortable retirement, nonretirees said they need $4,940, on average, according to Schroders.
Those who are already in retirement are coming up short of that goal, the survey found, with monthly income of $4,170, on average, including Social Security. Notably, 37% of those respondents said their monthly income is less than $2,500.
Aside from Social Security, nonretired Americans expect to generate income from a mix of assets. More than half plan to draw from cash, with 58%, followed by workplace retirement plans, 53%; investments outside employer-provided retirement plans, 40%; defined benefit or pension plans, 20%; rental income, 14%; annuities, 10%; cash value life insurance, 10%; or a reverse mortgage, 4%.
However, the challenge will be coming up with a steady stream of income that mimics a regular paycheck, Boyden noted. About half of respondents, 49%, said they do not have a retirement income strategy and just take money when they need it.
Yet, more than half — 57% — said the idea of not having regular paychecks in retirement is concerning, while 23% said it is terrifying.
“The retirement industry has collaborated to solve for accumulation; now we need to turn to solving for those spend down years,” Boyden said.