For Your Benefit

Experts: 70 Is the Golden Age to Max Out SS Benefits
Lack of proper retirement planning leads many to claim their Social Security benefit suboptimally.
By Patty Kujawa
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ecky Beach admits she doesn’t know much about Social Security, but she definitely thinks it won’t be around when she needs it. That’s why the 40-year-old lifestyle blogger plans to start taking the benefit when she turns 62.

“I plan to take it out as early as I can,” Beach said from her home in Arlington, Texas. “I don’t really know that much about Social Security, but I hear it’s going to go away.”

Lots of people like Beach think similarly. In fact, only 4 percent of retirees wait until the optimal age of 70 to take their Social Security benefit, a new study by robo-adviser United Income said. Retirees lose out on $3.4 trillion in possible income, which on average is $111,000 per household, because they don’t take Social Security at the best point in their lifetime.

“Most people don’t claim Social Security at the optimal age from a financial perspective because they may not be having the necessary retirement planning discussions,” said Jason Fichtner, former chief economist at the Social Security Administration, and co-author of the study. “Financial advisers, employer HR departments and policymakers could do a better job with educational materials and encouraging people to spend more time sorting through this important decision.”

Nearly all (92 percent) of retirees that took Social Security at the wrong time would have seen their income increase had they pinpointed the right time. In fact, more than half of these retirees could have increased their income by more than 25 percent in their 70s and 80s, the report said. That’s usually when people see spikes in health care costs.

Today, Social Security provides more than $1 trillion in benefits to 64 million Americans. It represents a third of retirement income for seniors, which averages $1,461 each month.

There is no doubt the system is being stressed with increased life expectancies, but the doomsday scenario of the system going broke isn’t exactly right, Fichtner said. The latest Social Security Administration report shows that the trust fund reserves are expected to be used up (if nothing is done) by 2035. If Congress chooses to do nothing to fund Social Security, it will still be able to pay out 80 percent of what working Americans are owed after 2035.

Social Security

“The trust fund may become depleted, but once depleted, it will pay out what it collects,” Fichtner said. “By law, Social Security will pay out 80 percent of what is promised.”

The study showed that most people should wait until 70 to claim their Social Security benefit. While workers can start claiming their benefit at 62, the amount increases on average about 8 percent each year they delay the claim. The Social Security Administration reported a 62-year-old would receive a $725 monthly benefit if they claimed today. Choosing to delay the benefit until age 70 would increase the amount to $1,280, a 177 percent increase.

Social Security provides more than $1 trillion in benefits to 64 million Americans.

While waiting to get a bigger paycheck sounds great, it may not always be feasible, said Colleen Jaconetti, senior investment analyst at The Vanguard Group. It’s not wise to completely deplete an investment portfolio to accomplish this, she said. In addition, some people may not be able to work or earn enough money in their later years to get them to 70.

“A lot of people don’t realize that they need to figure out how they fill that gap” between 62 and 70, Jaconetti said. “It’s a complicated problem.”

Jaconetti pointed out that those who are able to bridge the gap and delay claiming Social Security can also see other benefits from their decision. Some may see a lower tax bill while in retirement because Social Security taxes may only come from 85 percent to 50 percent of that income. In addition, relying more on Social Security in later years may allow heirs to inherit unused assets from retirement accounts. The important thing, she said, is that people make informed decisions on their health, financial status and other factors to determine the right time to claim the benefit.

Fichtner and Jaconetti agreed that most people are like Beach, they really don’t think about Social Security and may only have time to hear or see the headlines. It would be helpful for human resources leaders and policymakers to help people understand the options well before it becomes their time to make this often permanent decision to claim Social Security benefits. The study looked at Social Security messaging and suggested that the Social Security Administration revisit how it describes claiming age. Currently, age 62 is labeled “early eligibility age.” Fichtner suggested age 62 could simply be labeled “minimum benefit age” while age 70 could be labeled the “maximum benefit age.”

“How we talk about this can change behavior,” Fichtner said. “The little things can make a difference.”