Many financial advisors and economists with in-depth knowledge of Social Security recommend that people delay claiming their retirement benefits for as long as possible, preferably until age 70 when benefits are maximized.
But only 10% of pre-retirees intend to wait until age 70 to claim the maximum monthly benefit. A significant majority won’t even wait until their normal retirement age when they would receive what Social Security calls the “full retirement benefit,” according to the recent Schroders 2024 U.S. Retirement Survey.
About 43% of non-retirees said they plan to claim benefits before 67, the full retirement age for those born in 1960 or later. Of those, 23% said they intended to claim benefits at 65 and another 12% said they would claim benefits as early as possible at age 62.
Survey respondents gave several reasons why they plan to claim benefits early.
Ignorance of the rules isn’t a factor for most. About 75% of non-retirees surveyed said they knew that waiting to claim benefits would result in a higher monthly income.
A plurality (39%) said the reason for claiming benefits early was they needed the money. That could be a good reason for claiming early and giving up potentially higher lifetime income, if they really need the money to pay expenses.
But a non-retiree should look at the numbers carefully before deciding to claim early. Studies show that many people would have higher lifetime cash flow if they funded living expenses from investment and retirement accounts while they delayed Social Security retirement benefits.
The higher benefits plus inflation indexing over time often more than make up for spending other assets in the early years.
Other responses to the survey might be a better explanation of why many people claim benefits early. About 57% said they found the idea of not having a regular paycheck to be worrisome and 22% said it was terrifying.
About 88% of respondents said they didn’t know how to generate income in retirement.
I suspect those responses explain why many people believe they need a regular payment from Social Security and plan to claim benefits early.
Another reason for claiming early (cited by 38%) is a fear that Social Security will be depleted and benefit payments will stop.
As I’ve said in the past, this isn’t a good reason to claim Social Security benefits early. Even if the Social Security retirement trust fund runs out of money (currently projected to happen around 2033), the Social Security program won’t end.
Annual tax revenue dedicated to Social Security will pay 75% to 80% of promised benefits. At worst, if Congress doesn’t act, benefits would be reduced by 20% to 25%. The benefits won’t stop completely.
If benefits are cut across the board, I’d want my benefits to be reduced from the higher level paid to those who delay benefits instead of the lower level from having claimed early.
Another 36% of respondents said they simply wanted access to the money as soon as possible. I suspect that’s really a combination of the belief that the program will run out of money and stop paying benefits as well as the discomfort of not having a regular source of income.
There can be good reasons to claim Social Security retirement benefits early, and genuinely needing the money is one of those reasons.
But before claiming benefits, a person should carefully look at the long-term advantages and costs. Too many people underestimate the benefits of maximizing Social Security’s guaranteed lifetime income that’s indexed for inflation.