Americans are obsessed with getting the most out of Social Security, but many retirees are making a strategic mistake that could cost them tens of thousands of dollars in lifetime benefits. research From economists at Boston University and the Federal Reserve Bank of Atlanta.
The analysis examines the issue of the maximum age to claim Social Security to maximize retirees’ lifetime discretionary income, or the amount after taxes, living expenses and other necessary expenses. The Social Security Administration pays full benefits to a worker that it calls “Full retirement ageWhich is between the age of 66 to 67 depending on your year of birth.
But people can also claim Social Security as early as age 62, with their monthly checks reduced by 25%. On the other hand, if workers wait to take Social Security until age 70, they get a 32 percent increase in their payments in exchange for holding back.
However, the reality is that only 6% of American workers wait until age 70 to claim Social Security, even though the majority would be better off waiting until then to trigger their retirement benefits.
Claiming Social Security too early has a very real price tag, as the typical worker is giving up about $182,000 in lifetime discretionary income by claiming before age 70, the report found. Which most Americans can use because there are so many refugees. There is not enough left to see them through to old age.
According to data from the Social Security Administration, about half of Americans claim Social Security before full retirement age, and about a quarter claim by age 62.
Americans “have to change their thinking,” Lawrence J. Kotelkoff, one of the study’s co-authors and an economics professor at Boston University, told CBS MoneyWatch. “They think they’re going to die tomorrow, and that drives people to the jinx themselves” by claiming too soon.
Some people decide to claim Social Security early based on the average age of 65, which is 83 for men and 85 for women. But a better rule of thumb is to consider what Kotelkov and his co-authors call the “worst outcome, financially” — living to the prime of your life, which is the 90s or so. Can be over 100 years old.
The bottom line is that “we can’t count on dying on time,” said Kotelkoff, who writes about retirement. Maximize my Social Security and is the co-author of “ Instead, Americans should use financial strategies that help them delay claiming Social Security, which will increase their lifetime discretionary income.
“Find a Job”
About half of Americans are over 55. Lack of any retirement savingswhich means those workers will rely more on Social Security in their old age and may be tempted to claim early to get a steady stream of income as early as age 62.
But Kotlikoff said people who are physically active when they turn 62 should stay in the labor market instead of claiming Social Security because maximizing their benefits will make them better off in the long run. . The only people for whom it might make sense to claim early are those who have an illness or are disabled, he added.
“Most of the people who are retiring early are able-bodied, so it’s a fantastic labor market for those people – they should find jobs and work,” he said. “The reality is that we are retired longer than we are working.”
In addition to working longer, there are a number of other strategies workers can use to help delay claiming Social Security until full retirement age or beyond. For one, people with retirement savings in 401(k) or other accounts can draw down that amount first, he noted. Cost-saving measures such as moving in with relatives or taking out a loan from a family member can also help you till you reach age 70.
Of course, another aspect of waiting to claim Social Security is the potential cash flow decline when a person is in their early to mid-60s, the paper noted. But the analysis found that the impact of Social Security delays on household cash flows may not be as large as some fear.
“We found it [waiting to claim Social Security] At the median level, people’s spending drops by 7 percent — the message is that people think they won’t have anything to live on, but a lot of people have resources “beyond Social Security,” Kotlakov said. Kotlikoff said.
Overall, Americans need to spend a lot more on their old age, he added. People think they will need $1.25 million in savings to ensure a comfortable life in their golden years.For a recent Northwestern collaborative study. And yet the typical American has less than $87,000 in a retirement account.
“People are trusting Uncle Sam and their employers to take care of them, and we’ve seen the results,” Cottlekoff said. “It’s time for some tough love.”